The financial crisis dejour – historically, market segments have followed a crowd mentality. The more heated a market gets, the more individuals want to buy in, and the higher the prices are driven.
This mindset has occured throughout history and the cycles can be studied consistently. Professor G. Watson teaches corporate ethics and the role in the market economy. Regardless of whether we want to analyze recent credit markets which have Broke, these fluctuations are not new. They have routinely occurred throughout history.
One of the most discussed historical markets that burst was Amsterdam’s Tuplip economy. We can consider the Tulipmania of the tulip market that burst in 1637 as a popularly known historical account of a market that overheated.
Tulips were originally imported from Turkey in the early 16th century. As new “varieties” of tulip bulbs were discovered, competition intensified and their prices soared. One legitimately rare variety was the Semper Augustus which reached prices in excess of 1,000 florins per single bulb in 1623. This price was more than six times the average annual wage.
This industry mania continued – and ten years later the price had increased another ten times. At the market peak, the price of a single Semper Augustus tulip bulb reached 10,000 florins – the value of what it cost to buy a house in central Amsterdam at the time.
With time the market peaked and there was no-one left who still wanted to buy these bulbs at such high valuations. Within weeks, the market price crashed and many of people were left in economic ruin.
Throughout time – we have witnessed similar bubbles develop. As the crowd continues to get more hyped, those contrary views become less and less popular to be heard. Are any of the recent market bubbles any different? In modern times of politically correct speech, are the contrarian voices that stand up for character, ethics, and honesty any different? Throughout time, these contrarian voices have been demeaned and ignored. But the market for products and the market for principles has a way of always correcting itself from the heat of the crowd – and those extremist views tend to have their bubbles burst as the inevitable correction occurs. Today’s market is no different.