Famous First Bubbles : The Fundamentals of Early Manias

by Peter M. Garber

• ISBN13: 9780262571531
• ISBN10: 0262571536
• Edition: Reprint
• Format: Paperback
• Copyright: 2001-10-01
• Publisher: Mit Pr

Summary

The jargon of economics and finance contains numerous colorful terms for market-asset prices at odds with any reasonable economic explanation. Examples include "bubble," "tulipmania," "chain letter," "Ponzi scheme," "panic," "crash," "herding," and "irrational exuberance." Although such a term suggests that an event is inexplicably crowd-driven, what it really means, claims Peter Garber, is that we have grasped a near-empty explanation rather than expend the effort to understand the event. In this book Garber offers market-fundamental explanations for the three most famous bubbles: the Dutch Tulipmania (1634-1637), the Mississippi Bubble (1719-1720), and the closely connected South Sea Bubble (1720). He focuses most closely on the Tulipmania because it is the event that most modern observers view as clearly crazy. Comparing the pattern of price declines for initially rare eighteenth-century bulbs to that of seventeenth-century bulbs, he concludes that the extremely high prices for rare bulbs and their rapid decline reflects normal pricing behavior. In the cases of the Mississippi and South Sea Bubbles, he describes the asset markets and financial manipulations involved in these episodes and casts them as market fundamentals.

Author Biography

Peter M. Garber is Global Strategist at Global Markets Research of Deutsche Bank.

Table of Contents

Preface	ix
I The Bubble Interpretation	1	(14)
II The Tulipmania Legend	15	(70)
A Political and Economic Background	19	(6)
The Traditional Image of Tulipmania	25	(4)
Where Does the Tulipmania Legend Come From?	29	(4)
Establishment Attitudes toward Futures Markets and Short Selling: The Source of the Pamphlets	33	(4)
The Bubonic Plague	37	(2)
The Broken Tulip	39	(4)
The Bulb Market, 1634--1637	43	(6)
Some Characterization of the Data	49	(12)
Post-Collapse Tulip Prices	61	(4)
Bulb Prices in Later Centuries	65	(10)
Was This Episode a ``Tulipmania''?	75	(10)
III The Macro Bubbles	85	(42)
A Preliminary View: The Mississippi and South Sea Bubbles	87	(4)
John Law and the Fundamentals of the Mississippi and South Sea Bubbles	91	(4)
John Law's Finance Operations	95	(10)
A Rehash of Mississippi Market Fundamentals	105	(4)
Law's Shadow: The South Sea Bubble	109	(6)
South Sea Finance Operations	115	(6)
Fundamentals of the South Sea Company	121	(2)
Conclusion	123	(4)
Appendix 1: The Tulipmania in the Popular and Economics Literature	127	(6)
Appendix 2: The Seventeenth-Century Tulip Price Data	133	(12)
Notes	145	(4)
References	149	(6)
Index	155