Industry Bubbles that Pop – Is anything unique Today?
The market crisis dejour – throughout time, financial markets have experienced a crowd mentality. The more excited a market gets, the more individuals want to invest, and the higher the prices are pushed up.
This mindset has occured throughout history and the cycles can be studied consistently. Professor Greg Watson teaches entrepreneurial marketing and the role of the market economy. Regardless of whether we want to think about recent credit markets which have Pop, these scenarios are not original. They have regularly occurred throughout history.
One of the most popular historical markets that popped was Amsterdam’s Tuplip market. We can analyzie the Tulipmania of the tulip market that burst in 1637 as a popularly documented historical account of a industry that overheated.
Tulips were originally imported from Turkey in the early 16th century. As new “varieties” of tulip bulbs were sold, competition intensified and their prices soared. One honestly rare variety was the Semper Augustus which reached prices in excess of 1,000 florins per single bulb in 1623. That price exceeded more than six times the average annual wage.
This industry mania continued – and 10 years later the value had risen another ten fold. At the market height, the price of a single Semper Augustus bulb reached 10,000 florins – the equivalent of what it cost to acquire a house in the middle of Amsterdam at the time.
With time the market peaked and there was no-one remaining who still wanted to buy these bulbs at such high valuations. Within months, the market value crashed and many of people were left in economic ruin.
Throughout history – we have observed similar bubbles reoccur. As the crowd continues to get more excited, those contrary voices become less and less popular to be heard. Are any of the recent market bubbles any different? In today’s times of PC speech, are the contrarian voices that speak up for morality, ethics, and honesty any different? Throughout time, these contrarian voices have been ridiculed and ignored. But the market for products and the market for principles has a way of eventually correcting itself from the heat of the crowd mentality – and those politically correct views tend to have their bubbles burst as the neccessary correction occurs. Today’s market is no different.
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