15 Feb 2018

It Ain’t What You Don’t Know, It’s What You Know That’s Not So

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Hendrik Gerritsz Pot, Floraes Mallewagen (Flora’s wagon of fools), c.1640.

Anne Goldgar explains that the cautionary story of the great 17th century Dutch Tulip Bubble is mostly wrong.

Why have these myths persisted? We can blame a few authors and the fact they were bestsellers. In 1637, after the crash, the Dutch tradition of satirical songs kicked in, and pamphlets were sold making fun of traders. These were picked up by writers later in the 17th century, and then by a late 18th-century German writer of a history of inventions, which had huge success and was translated into English. This book was in turn plundered by Charles Mackay, whose Extraordinary Popular Delusions and the Madness of Crowds of 1841 has had huge and undeserved success. Much of what Mackay says about tulip mania comes straight from the satirical songs of 1637 – and it is repeated endlessly on financial websites, in blogs, on Twitter, and in popular finance books like A Random Walk down Wall Street. But what we are hearing are the fears of 17th-century people about a 17th-century situation.

It was not actually the case that newcomers to the market caused the crash, or that foolishness and greed overtook those who traded in tulips. But this, and the possible social and cultural changes stemming from massive shifts in the distribution of wealth, were fears then and are fears now. Tulip mania gets brought up again and again, as a warning to investors not to be stupid, or to stay away from what some might call a good thing.

RTWT

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6 Feedbacks on "It Ain’t What You Don’t Know, It’s What You Know That’s Not So"

Seattle Sam

It gets brought up because there are a number of other examples where investment followed a herd instinct more than it did rational assessments. And people understand tulips easier than complicated financial instruments.



Spurt Reynolds

It is called the theory of the greate fool and it definitely explained the Tech Bubble burst.

My firm saw it coming a mile off and was shorting the QQQs for over a year until it happened. Our clients were extremely happy.

You may be seeing the same thing in crypto-curriences.

Bubbles burst.



Dick the Butcher

It’s not what you buy. It’s what you pay.

I’m a barbaric relic/gold man.

Outside pure speculation/gambling/rolling-the-dice, I don’t “see” crypto-currencies at over $1.00 per.

Short Tesla.



GoneWithTheWind

I don’t see crypto currencies at all, in fact that is the first time I ever wrote that word or said it. I am willfully not involved in most of what the 20 somethings do. I was in the doctors office yesterday and the only magazine I could find was “People’. So I waited long enough to get through the entire magazine and didn’t recognize a single name or face in the entire magazine. Go figure. I assume they are all singers or actors or something but I don’t know a single one. Don’t facebook or tweet. Don’t even text (except under instruction from my wife when she is driving and I’m in chage of the phone). No crypto-currencies for me (I only wrote that again because it seems so novel to even say it or write it.) Not even sure what it is or why I should care.



Bunny

I’m with you, GWTW. I see the faces and names on the magazines and think, “Who are these people?”. But I don’t care enough to find out.



Dink Newcomb

GWTW: “I don’t know nothin bout buyin no tulips!”



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