The Consequences Of The Dutch Tulip Bubble In The 1700s
Under the impulse of money, people may act somehow unethical. For example: Benefit themselves from prejudicing the interests of others. The financial term economic bubble is refers to “the temporary condition caused by unjustified speculation in the price of a stock or commodity to a level that bears no relation to its real worth or potential.” (business dictionary.com) Throughout the history of finance, there are many notable bubbles. Numerous people paid heavy prices to endure the consequences of the collapse of the economy after the bubbles burst. Those bloody suffering began with three historical speculative behaviors, The Mississippi Bubble, The South Sea Bubble and The Dutch Tulip Bubble, which took placed in the early history of Europe.
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However, it is not the truth.
Thompson (2006) found that The Tulip Bubble was actually insufficient to meet the requirements that to be considered as a economic bubble: Despite outward appearances, the tulipmania was not a bubble because bubbles require the existence of mutually-agreed-upon prices that exceed fundamental values. The “tulipmania” was simply a period during which the prices in futures contracts had been legally, albeit temporarily, converted into options exercise prices. (p.1)
Thompson claimed in the quotation above that The Dutch Tulip Bubble was failed to qualified the financial term bubble. He believes the bubble is refers and only refers to the situation that the price of one good is far higher than its real value, and he did not think The Dutch Tulip Bubble meet this attribute of bubble. He points out that the tulips are rare species even now. Therefore, The Dutch
Tulip Bubble should not be considered as a financial bubble …show more content…
In May 1720, after John Law decided to devalued the Banque Générale notes by 50% (Moen, 2001, para.8.), the indignant public could no longer bear the irresponsibility behaviors of John Law and his company. A fierce riot in public was caused, finally, in resulted a compromise has been made that Banque Générale notes would went back to their former prices, Nevertheless, there would be no payment in precious metals anymore. Everyone in the country suffered from the collapse of the Compagnie company, which entrapped French into a serious
However, it is not the truth.
Thompson (2006) found that The Tulip Bubble was actually insufficient to meet the requirements that to be considered as a economic bubble: Despite outward appearances, the tulipmania was not a bubble because bubbles require the existence of mutually-agreed-upon prices that exceed fundamental values. The “tulipmania” was simply a period during which the prices in futures contracts had been legally, albeit temporarily, converted into options exercise prices. (p.1)
Thompson claimed in the quotation above that The Dutch Tulip Bubble was failed to qualified the financial term bubble. He believes the bubble is refers and only refers to the situation that the price of one good is far higher than its real value, and he did not think The Dutch Tulip Bubble meet this attribute of bubble. He points out that the tulips are rare species even now. Therefore, The Dutch
Tulip Bubble should not be considered as a financial bubble …show more content…
In May 1720, after John Law decided to devalued the Banque Générale notes by 50% (Moen, 2001, para.8.), the indignant public could no longer bear the irresponsibility behaviors of John Law and his company. A fierce riot in public was caused, finally, in resulted a compromise has been made that Banque Générale notes would went back to their former prices, Nevertheless, there would be no payment in precious metals anymore. Everyone in the country suffered from the collapse of the Compagnie company, which entrapped French into a serious