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Famous First Bubbles: The Fundamentals of Early Manias

Author

Listed:
  • Peter M. Garber

    () (Brown University)

Abstract

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.

Suggested Citation

  • Peter M. Garber, 2001. "Famous First Bubbles: The Fundamentals of Early Manias," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262571536, January.
  • Handle: RePEc:mtp:titles:0262571536
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Campbell, Gareth, 2012. "Myopic rationality in a Mania," Explorations in Economic History, Elsevier, vol. 49(1), pages 75-91.
    2. Giusti, G. & Noussair, C.N. & Voth, H-J., 2013. "Recreating the South Sea Bubble : Lessons from an Experiment in Financial History," Discussion Paper 2013-042, Tilburg University, Center for Economic Research.
    3. Bradley Jones, 2014. "Identifying Speculative Bubbles; A Two-Pillar Surveillance Framework," IMF Working Papers 14/208, International Monetary Fund.
    4. Yang Hu & Les Oxley, 2017. "Exuberance in Historical Stock Prices during the Mississippi and South Seas Bubble Episodes," Working Papers in Economics 17/08, University of Waikato.
    5. Turner, John D., 2014. "Financial history and financial economics," QUCEH Working Paper Series 14-03, Queen's University Belfast, Queen's University Centre for Economic History.
    6. M. Fase, 2008. "Book Review," De Economist, Springer, vol. 156(1), pages 103-105, March.
    7. Pastor, Lubos & Veronesi, Pietro, 2006. "Was there a Nasdaq bubble in the late 1990s?," Journal of Financial Economics, Elsevier, vol. 81(1), pages 61-100, July.
    8. Malcolm Anderson, 2002. "Accounting History publications 2001," Accounting History Review, Taylor & Francis Journals, vol. 12(3), pages 505-512.
    9. Toms, Steven, 2015. "Fraud and Financial Scandals: A Historical Analysis of Opportunity and Impediment," MPRA Paper 68255, University Library of Munich, Germany.
    10. Yang Hu & Les Oxley, 2017. "Exuberance in British Share Prices during the Railway Mania of the 1840s: Evidence from the Phillips, Shi and Yu Test," Working Papers in Economics 17/09, University of Waikato.
    11. Knoll Bodo, 2011. "Vom Wert der Blase – Die Funktion der Spekulation in der Marktwirtschaft / On the Value of Bubbles – The Function of Speculation for a Market Order," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 62(1), pages 115-144, January.
    12. Christopher Kobrak & Mira Wilkins, 2011. "The '2008 Crisis' in an economic history perspective: Looking at the twentieth century," Business History, Taylor & Francis Journals, vol. 53(2), pages 175-192.
    13. Victor Nee & Sonja Opper, 2009. "Bureaucracy and Financial Markets," Kyklos, Wiley Blackwell, vol. 62(2), pages 293-315, April.
    14. Thomas Schuster, 2003. "Meta-Communication and Market Dynamics. Reflexive Interactions of Financial Markets and the Mass Media," Finance 0307014, EconWPA.
    15. Bradly Alicea, 2014. "Contextual and Structural Representations of Market-mediated Economic Value," Papers 1403.7021, arXiv.org.
    16. Kumar, Praveen & Langberg, Nisan, 2013. "Information manipulation and rational investment booms and busts," Journal of Monetary Economics, Elsevier, vol. 60(4), pages 408-425.
    17. John Quiggin, 2011. "What Have We Learned from the Global Financial Crisis?," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 44(4), pages 355-365, December.
    18. Campbell, Gareth & Turner, John, 2010. "‘The Greatest Bubble in History’: Stock Prices during the British Railway Mania," MPRA Paper 21820, University Library of Munich, Germany.

    More about this item

    Keywords

    bubbles; Dutch Tulipmania; market-asset prices;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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