Wednesday, October 18, 2017

Was Tulip Mania Fake News?

For generations, economists and financial writers have illustrated the folly of investment bubbles by referencing the 17th-century  tulip mania. As colorfully described by Charles Mackay in Extraordinary Popular Delusions and the Madness of Crowds, Amsterdam went nuts over "broken tulips," bidding astronomical prices for virus-inflected bulbs that produced exotic blooms.

But we may have to find another financial frenzy with which to scare investors. There was no tulip fever, Smithsonian asserts. Prices for "hot" bulbs did soar and eventually crash, but trading was largely limited to urban upward strivers, eager to obtain the exotic status symbol of the day. Mackay fell for tall tales told by Dutch moralists dramatizing the evils of trying to get rich quick.

For the moment, looks like we'll have to settle for the millennial dot-com bubble to illustrate the dangers of irrational investor exuberance. But have patience – bitcoin mania may have legs.
Like to learn more? Peter M. Barber's Famous First Bubbles can be read online here. YouTube offers numerous treatments of tulip mania – this two-parter will tell you more than you may want to know.

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