The Dutch Tulip Crisis of the 1630’s was a socio-economic disaster caused by greed and opportunity. It would seem that those words when taken out of context and examined today seem to describe recent and current speculative bubbles we have experienced in modern day society. Story has it that “in the 1630s a sailor was thrown in a Dutch jail for eating what he thought was an onion. That onion was in fact a tulip bulb. The cost of the sailor’s gluttony was equivalent to the cost of feeding an entire crew for twelve months” (Economist.com). While this story is probably just urban legend, herein lies the problem with the tulip crisis, it happened so long ago that many of the analysis is just pure speculation and “the line between fact and fiction is blurred” (Economist.com). That’s not to say that it still cannot be used as a valuable lesson into not letting us as human beings repeat such a dreaded type of history, but must be taken with a grain of salt as well during such analysis.
“Tulpenwoede (tulip madness) resulted in big increases in tulip prices. At the beginning of 1637, some tulip contracts reached a level about 20 times the level of three months earlier” (Economist.com). Popular belief is that this bubble was brought about by market irrationality, ideas that were advanced by Charles Mackay and what many current day scholars draw their analysis from. However it is important to remember that these are not the only hypothesis(s) that exist about the cause of Tulip Mania, and many economists have come forward with their own accounts of what caused the crisis. The two most popular opinions are of Peter Garber and Earl Thompson. I put blame on the general public for the price increases… I reckon that an outbreak of bubonic plag...
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“Investor Manias through the Centuries.” http://search.proquest.com/docview/223192012?accountid=8262 “Financial Market Bubbles” http://www.jstor.org/stable/40056811
Jones, Dan. “Bursting Bubbles.” History Today 59.8 (2009): 3-4. Historical Abstracts.
Kindleberger, Charles P. Manias, Panics, and Crashes: A History of Financial Crises. London: Macmillan, 1978.
Garber, Peter M. “Famous First Bubbles.” Journal of Economic Perspectives 4.2 (1990): 35-50. Historical Abstracts.
Thompson, E. A. (2007). “The tulipmania: Fact or artifact?” Public Choice, 130(1-2), 99-114.
Mackay, C. (2004) [1841] Extraordinary popular delusions and the madness of crowds.
Garber, P. M. (1989). ‘Tulipmania’. Journal of Political Economy, 535-560. http://www.economist.com/blogs/freeexchange/2013/10/economic-history http://www.vanityfair.com/online/daily/2013/04/logic-problems-bitcoin-bubble
The stock market expanded rapidly during the period of 1921-1929. At this time investors were optimistic about the stock market, so they traded stocks, which caused the stock prices to rise. The stock market boom led to asset prices rising at a fast pace. Which in turn outweighed the true value of the assets. Eventually, since the stock market did not reflect the true value of the stock, this led to a huge bubble followed by a crash. This crash is also known as the Great Depression that led to a severe economic crisis in the United States.
It made benchmark interest rate remains low. Then the excess liquidity made the asset bubble. Finally, the burst of asset bubble thumped the financial system. (Pierpaolo,B and Woodford,M, 2003)
Speculation does not take place in a vacuum and therefore must come from somewhere. Galbraith points to the flow of gold into the United States from 1925 on and the subsequent reduction in the Federal Reserve rediscount rate as the first step. He immediately points out that available funds will not by itself lead to speculation. This is a fair assumption given that people with a substantial amount of savings or income are not always going to plunge into the market in order to double their money. In fact, Galbraith notes that the majority of people during this time did not have substantial savings or high incomes. The author also points out the lack of distribution of wealth as an underlying cause of the crash because the economy was dependent on the financial contributi...
The period between 1880 and 1900 was a boom time for American Politics. The country was finally free of the threat of war, and many of its citizens were living comfortably. However, as these two decades went by, the American farmer found it harder and harder to live comfortably. Crops such as cotton and wheat, once the sustenance of the agriculture industry, were selling at prices so low that it was nearly impossible for farmers to make a profit off them. Furthermore, improvement in transportation allowed foreign competition to materialize, making it harder for American farmers to dispose of surplus crop. Mother Nature was also showing no mercy with grasshoppers, floods, and major droughts that led to a downward spiral of business that devastated many of the nation’s farmers. As a result of the agricultural depression, numerous farms groups, most notably the Populist Party, arose to fight what the farmers saw as the reasons for the decline in agriculture. During the final twenty years of the nineteenth century, many farmers in the United States saw monopolies and trusts, railroads, and money shortages and the loss in value of silver as threats to their way of life, all of which could be recognized as valid complaints.
Another issue that caused the market to drop has to do with America’s finances. In the 1920’s, stock prices were getting out of hand. Many investors were buying stocks on margin:
The Roaring Twenties approached and the citizens in Colorado were facing rough times. In 1920, many people such as farm owners, manufacturers, and even miners were having a hard time making a living due to an economic downfall. The farmers especially, where facing the toughest of times. The price of various farm-grown goods like wheat, sugar beets, and even cattle was dropping because their goods were no longer needed by the public. Wheat had dropped in price from $2.02 in 1918 to $0.76 by the time 1921 came around. Sadly, the land that they were using to grow wheat became dry and many farmers had to learn to grow through “dryland farming” which became very popular in the eastern plains from 1910 to 1930 (Hard Times: 1920 - 1940). Apple trees began to die due to the lack of desire for apples, poor land, and decreased prices. Over the course of World War I, the prices of farm goods began to increase slowly. Farmers were not the only one facing this economic hardship while others in big cities were enjoying the Roaring Twenties.
The stock market crash of 1929 is the primary event that led to the collapse of stability in the nation and ultimately paved the road to the Great Depression. The crash was a wide range of causes that varied throughout the prosperous times of the 1920’s. There were consumers buying on margin, too much faith in businesses and government, and most felt there were large expansions in the stock market. Because of all these...
] This catastrophic event is caused by the accumulation of a large scale of speculation by not only investors but also banks and institutions in the stock market. Though the unemployment rate was climbing during the 1920s and economy was not looking good, people on Wall Street were not affected by the depressing news. The optimism spread from Wall Street to small investors and they were investing with the money they don’t have, which is investing on margin as high as 90%. When the speculative bubble burst, people lost everything including houses and pensions. The main reason ...
What started these tragic ten years were really the events categorized under ‘economic factors’. The economy went into a downward spiral, first, with the Stock Market Crash of October 29, 1929, nicknamed “Black Tuesday” (PowerPoint). The cause of this was actually many factors all happening within a few months. Many companies went bankrupt from overproduction of goods and started stockpiling them. They assumed the economy will keep rising like it did during the “Roaring Twenties”; but when Europe started to mend from the destruction of the war, the demand for products went down. In addition, on October 29th, the value of the stocks became overpriced, and everyone wanted to sell while they were ahead. The sheer number of stocks on the market lowered their value so much, that the price afterwards was only a fraction of what it was before. However, it was not just the Stock Market Crash that overturned the economy, but the farmers also had trouble coping. In the early 1930’s, a massive drought swept through the prairies and the central US, killing off anything that...
In October 1929, the United States stock market crashed due to panic selling. This crash started a rippling effect that contributed to a world wide economic crisis called the Great Depression. This crash was such a shock because of the economic expansion of the 1920’s when the Dow Jones average reached an all time high of three hundred eighty one. The year 1928 was a time of optimism and the stock market had become a place where everyday people truly believed that they could become rich. People everywhere were talking about the market and newspapers were reporting stories of ordinary people such as chauffeurs, maids, and teachers making millions off the stock market. People who didn’t have the money bought on margin. The stock market was booming and the excitement about the market caused a lot of over speculation. People ignored the small signs of the impending crash until Black Thursday, October 24, 1929. Four days later the stock market fell again.
In early 1928 the Dow Jones Average went from a low of 191 early in the year, to a high of 300 in December of 1928 and peaked at 381 in September of 1929. (1929…) It was anticipated that the increases in earnings and dividends would continue. (1929…) The price to earnings ratings rose from 10 to 12 to 20 and higher for the market’s favorite stocks. (1929…) Observers believed that stock market prices in the first 6 months of 1929 were high, while others saw them to be cheap. (1929…) On October 3rd, the Dow Jones Average began to drop, declining through the week of October 14th. (1929…)
Grant, Peter. "The Giant J.P. Morgan and The Panic of 1907." The New York Daily News 20 Mar. 1998: 49 "J. P. Morgan". Dictionary of American Biography. New York: Charles Scribners and Sons, 1934. Vol. 7 "J. P. Morgan". International Directory of Company Histories. Chicago: St. James's Publishing, 1990. Vol. 2
The term relates to the time in which houses sharply increased in value, and consumers often borrowed at less than the lowest rates. People believed that the price of their homes would rise and they could then refinance for lower payments. The problem with that mentality is many people didn’t just refinance for lower payments, they also refinanced for personal spending. Inflation in home prices meant homeowners suddenly had more equity and were able to spend the money as they chose. All good things must come to an end.
Ferguson, Niall. "The Gresham Special Lecture - The Ascent of Money: An Evolutionary Approach to Financial History | Gresham College." Free Public Lectures | Gresham College. Web. Mar. 2011. .
In this project, we attempt to find out the causes for this price rise, the trends of the rise and the effects that this rise has had on us.