Tuesday, May 29, 2007

Mises on Tulip Mania

An interesting essay from the Mises Institute called, "The Truth About Tulip Mania".

Here's the author explaining why this speculative mania, much misunderstood and frequently mischaracterized, is important to understand:

The story of Tulipmania is not only about tulips and their price movements, and certainly studying the "fundamentals of the tulip market" does not explain the occurrence of this speculative bubble. The price of tulips only served as a manifestation of the end result of a government policy that expanded the quantity of money and thus fostered an environment for speculation and malinvestment. This scenario has been played out over and over throughout history.

This is an important view of what may have fueled the speculative bubble in Holland, and the author goes so far as to present evidence of a rising money supply before and during the bubble period. This, the author argues, shows conditions for a bubble were ripe.

Read on for an interesting view of how a bubble takes shape in 1630s Amsterdam.