The financial crisis dejour – throughout history, financial markets have experienced a crowd mindset. The more heated a market gets, the more individuals want to jump in, and the higher the prices are driven.
This mindset has occured throughout history and the cycles can be observed consistently. Professor Greg Watson teaches social entrepreneurship and the role in the market economy. Regardless of whether we want to think about recent credit markets which have Broke, these scenarios are not new. They have consistently occurred throughout history.
One of the most talked about historical markets that broke was Amsterdam’s Tuplip sector. We can evaluate the Tulipmania of the tulip market that burst in 1637 as a popularly known historical account of a economy that overheated.
Tulips were originally imported from Turkey in the early 16th century. As new “varieties” of tulip bulbs were introduced, 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 10 years later the value had risen another ten times. At the market peak, the value of a single Semper Augustus 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 acquire these tulips at such high valuations. Within months, the market price crashed and many of people were left in financial ruin.
Throughout time – we have observed similar bubbles reoccur. As the crowd mentality 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 modern environment of politically correct speech, are the contrarian voices that speak up for character, ethics, and integrity 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 required correction occurs. Today’s market is no different.