Rational Explanations
There is no dispute that prices for tulip bulb contracts rose and then fell in 1636–37, but even a dramatic rise and fall in prices does not necessarily mean that an economic or speculative bubble developed and then burst. For tulip mania to have qualified as an economic bubble, the price of tulip bulbs would need to have become unhinged from the intrinsic value of the bulbs. Modern economists have advanced several possible reasons for why the rise and fall in prices may not have constituted a bubble.
The increases of the 1630s corresponded with a lull in the Thirty Years' War. Hence market prices (at least initially) were responding rationally to a rise in demand. However, the fall in prices was faster and more dramatic than the rise. Data on sales largely disappeared after the February 1637 collapse in prices, but a few other data points on bulb prices after tulip mania show that bulbs continued to lose value for decades thereafter.
Read more about this topic: Tulip Mania
Famous quotes containing the words rational and/or explanations:
“Every rational creature has all nature for his dowry and estate. It is his, if he will. He may divest himself of it; he may creep into a corner, and abdicate his kingdom, as most men do, but he is entitled to the world by his constitution.”
—Ralph Waldo Emerson (1803–1882)
“Young children constantly invent new explanations to account for complex processes. And since their inventions change from week to week, furnishing the “correct” explanation is not quite so important as conveying a willingness to discuss the subject. Become an “askable parent.””
—Ruth Formanek (20th century)