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Famous First Bubbles
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Famous First Bubbles

The Fundamentals of Early Manias

Peter M. Garber
MIT Press, 2000

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Editorial Rating

6

Qualities

  • Innovative

Recommendation

During the collapse of the so-called Internet bubble, the legendary Dutch fiscal intoxication with tulips, called tulipmania, was widely cited as a lesson from history. The financial press hyped stories of deluded Dutch farmers who mortgaged all their worldly possessions to purchase a single prize tulip bulb, only to meet financial ruin when the bubble inevitably burst. Economist Peter M. Garber dug into history, and found that most of the common wisdom about the tulipmania was false. So, if you ever wondered how Dutch investors could have been so foolish, there is a simple answer: they weren’t. Famous First Bubbles clearly evolved from a series of academic papers but, nonetheless, the book is entertaining. The primary focus on the tulip bubble makes the sections on the Mississippi and South Sea Bubbles seem like afterthoughts. getAbstract.com recommends this to iconoclasts who enjoy debunking historical legends and to bubble watchers everywhere.

Take-Aways

  • "Bubble" is an imprecise term usually describing a sharp rise and then a fall in asset prices.
  • The Dutch tulipmania of 1634-37 is widely believed to be a case of mass investor hysteria followed by economic depression, illustrating the peril of speculative markets.
  • In fact, market fundamentals offer a rational explanation for the tulipmania.

About the Author

Peter M. Garber is a global strategist at Global Markets Research at Deutsche Bank and Professor of Economics at Brown University

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