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Saturday, June 25, 2005

A History Of TulipMania (via Econbrowser)

James Hamilton at Econbrowser shoots some holes in recent comments comparing housing bubbles to the "tulip mania" of the mid-1600s. It turns out that they really aren't that similar after all:

Many folks appear to be convinced that the current housing situation is akin to any of a number of other famous financial bubbles of history. Trouble is, those famous bubbles weren't very much like what most people seem to assume.

...Much of the popular understanding of the Dutch tulip mania is derived from Charles Mackay's delightfully written book, Extraordinary Popular Delusions and the Madness of Crowds , whose first edition appeared in 1841. Nine colorfully narrated pages describe the market for tulips in Holland between 1634 and 1637.It was not until 1989, however, that the record of this episode was really set straight by the careful research of Peter Garber published in the Journal of Political Economy. Garber documented that the spectacular tulip prices recounted by Mackay never applied to ordinary tulip bulbs, whose prices, even at the height of the frenzy, were quoted like produce by the half-pound or pound. The extraordinary prices characterized instead a few special lines of tulips that had been infected by a mosaic virus which in some circumstances produced a particular pattern judged to be beautiful, such as the Semper Augustus shown at the right. But if you liked the effect in a particular flower, the only way to reproduce it would be to cultivate a few buds from the original, hoping to have two or three bulbs in the following year with the same qualities.

Click here for the whole post.

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