To add to Keynes and Hayek’s boom and bust business cycle theory, the generally considered first recorded speculative bubble was the 1600’s Tulip Mania. Where the scarcity of the tulip grew demand; some single bulbs sold for ten times a skilled craftsman’s yearly salary. Needless to say, it wasn’t an accurate reflection of asset prices as it deviated from the tulip bulbs intrinsic value, causing the bubble to burst.
“The price of tulips only served as a manifestation of the end result of a government policy that expanded the quantity of money and thus fostered an environment for speculation and malinvestment.” (French, 2006)
Source: (Singh, 2015).
Featured image supplied free from Unsplash.
References (American Psychological Association)
French, D. (2006). The dutch monetary environment during tulipmania. The Quarterly Journal of Austrian Economics. 9(1). 3-14. Retrieved [20/05/15] from <http://www.kfn.uni.wroc.pl/KOMUNIKATY/TULIPANY/The%20Dutch%20monetary%20environment%20during%20tulipomania.pdf>.