A Short History of Fads

In February 1637, a single bulb of the Semper Augustus tulip sold in Amsterdam for the price of a house on a canal. If you had bought one of those bulbs in November 1636 and sold it in January 1637, you would have tripled your money. If you held it until March, you were ruined. Tulip mania is the most entertaining entry in the catalog of financial bubbles because it involves flowers. But the mechanics are identical to what happened in 1720 with South Sea Company shares, in the 1840s with British railway stocks, in the 1980s with Japanese real estate, in 1999 with dot-com IPOs, in 2006 with Florida condos, and in 2021 with NFTs. The first thing to understand about a bubble is that it is not entirely irrational while it is happening. Tulips were genuinely scarce and genuinely fashionable. Railway technology was genuinely transformative, and the internet did change commerce. Every bubble grows from a real phenomenon, which is precisely what makes it so effective at separating people from…