The word "bubble economy" comes from this incident.
/kloc-at the end of 0/7, the British economy developed vigorously. However, people's funds are idle and their savings are inflated. At that time, the circulation of stocks was very small, and owning stocks was still a privilege. For this reason, Nanhai Company found a lucrative business opportunity, that is, trading with the government in exchange for operating privileges, so Nanhai Company was established on 17 1 1.
17 19, the public was optimistic about the stock price, which promoted the conversion of bonds into stocks at that time, and then responded to the rise of stock prices.
1720, Nanhai Company accepted investors to purchase new shares by stages to stimulate stock issuance. After the British House of Commons passed the South China Sea Company Transaction Bill, the share price of South China Sea Company jumped from 129 to 160. When the House of Commons also passed the bill, the stock price rose to 390. So the investment was more enthusiastic, and more than half of the members of the Senate intervened, even the king was no exception. The shortage caused the price to soar above 1000. The real performance of the company seriously deviates from people's expectations.
1720 In June, the British Parliament passed the Anti-Financial Fraud and Speculation Act. Many companies were dissolved and the public began to question them, which affected Nanhai Company.
Since July 1720, insiders and government officials have sold heavily, and the share price of Nanhai Company has plummeted. In February, the price per share/kloc was-0/24, and south sea bubble was shattered.
The British Chancellor of the Exchequer made a private profit of 900,000 pounds in the insider trading of Nanhai Company. After the scandal was exposed, he was sent to the Tower of London in the Royal British Prison. However, those unsuspecting investors are worse off than him. The British economy and government credit have also been hit hard.
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Tulip bubble, in short, is caused by the profit psychology of social collective speculation to make money. The consequence is that sooner or later, the bomb will be passed around, and the last person will be unlucky. It will also cause vicious social and economic turmoil and damage the original development trend of the economy.
When it comes to tulips, many people will think of Holland, which is known as the "Flower Country". Indeed, the Dutch love tulips and regard them as national flowers. Together with windmills, cheese and wooden shoes, they are collectively called the "four national treasures" of the Netherlands. Every late spring, tulips all over the mountains compete for beauty, with crystal-clear slender leaves and flowers like wine glasses, which are transparent and fragrant and intoxicating. Dumas, a French writer, once praised a kind of night queen named "Black Widow" in his masterpiece "black tulip": "It's so gorgeous that you can't open your eyes and it's so perfect that you can't breathe". The novelist's beautiful style adds romance and romance to tulips.
However, most people today may not understand that once upon a time, the beautiful flowers of tulips made countless Dutch people crazy; A tulip bulb that looks like an onion is priceless. Even the whole country fell into chaos because of tulips and paid a heavy price for it. ...
The Three Biggest Bubbles in History-Tulip Speculation
Tulip speculation
It is hard to imagine that the first major speculative frenzy in the history of world economic development was triggered by a small plant.
This speculation was recorded in history by the decline of the powerful colonial empire in the Netherlands, and it is also an extremely rare case in securities trading so far. The unique term "tulip phenomenon" in economics comes from this!
Let's go back to Holland in the17th century and see how the initiators of the world speculative frenzy are crazy about it and how they cry for it.
Tulip, a perennial herb of Liliaceae. Tulips are native to Asia Minor and are very common there. Generally, only three or four broad pinkish leaves grow, and there are scaly bulbs at the roots. When the early spring is warm and cold, tulips are in bud and the flowers are cup-shaped, which is very beautiful. There are many varieties of tulips, among which black flowers are rare and the most precious. There are many stripes or spots on the petals of tulips, which are easily attacked by viruses.
/kloc-Dutch society in the 0/7th century was a hotbed for cultivating speculators. People's desire to gamble and speculate is so strong that beautiful and charming rare tulips will inevitably become their prey, and savvy speculators begin to hoard tulip bulbs in large quantities for the price to rise. Under the advocacy of public opinion, people's worship of tulips became stronger and stronger, and finally they showed a morbid worship and fanaticism to tulips, so that owning and planting this flower gradually became a symbol of enjoying a high reputation. People began to follow suit and snapped up tulip bulbs. At first, light bulb manufacturers just hoarded in large quantities, hoping that prices would rise. With the development of speculation, a large number of speculators took the opportunity to fry tulips. For a time, tulips quickly expanded into illusory value symbols, making thousands of people crazy.
Tulips are often attacked by a non-lethal mosaic virus during cultivation. This virus causes tulip petals to produce some colorful stripes or "flames" with very bright color contrast. The Dutch cherish these infected bulbs very much and call them "strange".
Mosaic disease encourages people to speculate crazily. Soon, the public's unanimous appraisal standard became: "The weirder the light bulb, the higher the price!" The price of tulip bulbs began to soar. The higher the price, the more buyers. Speculators from all over Europe flocked to the Netherlands to join the speculative frenzy.
1636 tulips, which looked worthless on the surface in the past, actually reached the equivalent level of a carriage and several horses. Even the company's invisible light bulb changed hands several times when it was used in the wild.
1637 the price of a tulip bulb called "Switser" increased by 485% in one month! In a year, the total increase of tulips is as high as 5900%!
All speculative fanaticism has the same rule. Rising prices have prompted many speculators to intervene, and long-term high prices have prompted many speculators to be cautious. At this point, any trouble may lead to the collapse of the whole market.
In his book, Charles McKay tells a story, which he attributes to an accident that caused panic in tulip bulbs.
A young sailor is a foreigner. When he first came, he didn't know there was tulip hype in Holland. The sailor was rewarded by the owner for his hard work. When he left the ship, he picked up a tulip bulb named "Augustus Forever". That light bulb was bought by the shopkeeper from the Amsterdam exchange with 3000 gold coins (now about 30 thousand to 50 thousand dollars) The owner found that the tulip was lost, so he went to the sailor and found him in a restaurant, only to find that the sailor was contentedly swallowing the bulbs soaked with smoked squid. The sailor knows nothing about the value of tulip bulbs. He thinks bulbs, like onions, should be eaten together as a seasoning for herring. Bulbs worth thousands of gold coins look like onions to strangers. It is difficult for the judge to decide whether the sailors are crazy or the Dutch are too irrational. However, it was this seemingly bomb-like accident that caused panic on the Amsterdam Stock Exchange. Cautious speculators began to reflect on this strange phenomenon, and the result of reflection without exception had a fundamental doubt about the value of tulip bulbs. Few people feel that things are not good and start selling light bulbs at low prices. Some sensitive people immediately followed suit, and then more and more people were involved in the panic selling wave, and the storm finally came.
At that time, tulips became a hot potato, and no one dared to take over. The price of tulip bulbs has plummeted like dead branches falling from a cliff. The Dutch government issued a statement that the price of tulip bulbs had no reason to fall, told the public to stop selling, and tried to close all contracts at 10% of the contract price, but these efforts were useless. A week later, the price of tulip is almost worthless-its price is only the price of an ordinary onion.
Thousands of people cried for it. Overnight, many people became penniless, wealthy businessmen became beggars, and some big noble fell into irreparable bankruptcy.
There must be a plunge in the skyrocketing, and the role of objective economic laws is unstoppable by anyone. Just after the falling frenzy, citizens complained bitterly and tried their best to find scapegoats, but tried their best to avoid the fact that irrational speculation existed in the whole country. They blamed the hapless sailors, or the government's ineffective control measures, and begged the government to restore the price of light bulbs to the pre-crash level. This is obviously self-deception!
People then lend a helping hand to the court. In the panic, all the businessmen who signed the high-priced purchase contract refused to fulfill their promises, and only the law could urge them to act according to the contract. However, apart from intervening in some specific economic behaviors, laws can never override economic laws. The judge reluctantly claimed that the tulip hype is a national gambling activity and its behavior is not protected by law!
People are completely desperate! Once upon a time, those who cried for getting rich overnight are now crying for the sudden arrival of poverty. It's like a nightmare. After waking up, I tried my best to knead my face with my hands before I realized that the reality was in my dream. The Dutch, who are exhausted physically and mentally, stare at the tulip bulbs in their hands with dull eyes every day and reflect on everything in their dreams ... The initiator of the world speculative frenzy has paid too much for his fanaticism, and the economic prosperity of the Netherlands is only a flash in the pan and has since declined.
The panic of tulip bulbs has had a serious impact on the Netherlands, causing it to fall into a long-term economic depression. /kloc-In the second half of the 0/7th century, the position of the Netherlands in Europe was strongly challenged by Britain, and the center of European prosperity immediately moved to the other side of the English Channel.
Tulips are still tulips, but the Netherlands fell from the throne of the world's first empire and never recovered.
"Tulip phenomenon" has become synonymous with economic activities, especially the speculation in the stock market, which has caused the stock price to skyrocket and plummet, and will be recorded in the history of world economic development forever.
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Characteristics of Mississippi bubble
Eighty years after the tulip bubble crash, the famous French Mississippi stock market bubble appeared in 17 19. The similarity between the two bubbles is that the price of French stock market fluctuated greatly in a short time like the price of tulips in that year. From May of 17 19, the French share price rose continuously for 13 months, and the share price rose from 500 Riffle to more than 10000 Riffle, with an increase of more than 20 times. The French stock market crashed from1May, 720, and fell for 13 months, with a drop of 95%. The difference between the Mississippi stock market bubble and tulip bubble is that the Dutch tulip bubble is basically a folk hype, while the French Mississippi stock market bubble has obvious official background. Tulip bubble's hype is just a commodity, and the number of participants is limited. However, the stock market bubble in Mississippi, France occurred in the stock and bond markets, involving the broad masses of middle and lower class people in France. From this perspective, the stock market bubble in Mississippi, France has more modern characteristics.
John law's Financial Theory
/kloc-At the beginning of the 0/8th century, due to the war launched year after year by King Louis XIV of France, the French national economy fell into great difficulties, economic depression and deflation. At that time, France's tax system was extremely imperfect, not only the French royal family was tax-free, but also there were many loopholes in other places. Although the French government keeps raising the tax rate, it still can't make ends meet, the national treasury is empty, the debts are high, the people complain, and the country is in crisis.
At this juncture, John Law, a generation of eccentric monetary theory, came into being. John law was born in Edinburgh, England, and received a good political and economic education when he was young. John law was full of blood when he was young. He killed someone in the duel of 1694 and had to flee. During his wandering in Europe, john law carefully observed the banking, finance and insurance industries in various countries, and put forward his own unique financial theory. Like many economists in the18th century, he thought that under the condition of insufficient employment, increasing the money supply could increase employment opportunities and national output without raising the price level. Once the output increases, the demand for money will follow. After achieving full employment, monetary expansion can attract external resources and further increase output. He thinks that the paper currency standard system is superior to the precious metal standard system, and the paper currency standard system has greater flexibility and gives the issuing bank more operating space and macro-economic control ability (see Law, 1760). To put it bluntly, it is to adopt the precious metal standard and issue money to see how much gold and silver you have. It is called precious metal because the reserves of gold and silver in the world are limited, and it is almost impossible to increase the supply of gold and silver in a short time. There is no such restriction in the paper money standard system. If the financial authorities are willing, they will start the bank's printing machine and print as many as they want. This feature of paper money standard makes it like a double-edged sword, which not only enhances the influence of fiscal and monetary policies, but also brings the danger of inflation. John law believes that banks with the right to issue money should provide production credit and sufficient money to ensure economic prosperity. The money supply he mentioned includes government legal tender, bank notes, stocks and various securities (see Michael bordo, 1994). It is not difficult to see that john law's theory has already included some basic viewpoints of contemporary supply school and monetary school. Schumpeter, a famous economist, once spoke highly of john law's financial theory, which enabled him to rank among the first-class monetary theorists at any time.
God-given opportunity, john law has a place to play.
17 15, Prince Aurion, the regent of France, was worried about the financial difficulties of France. John law's theory seems to have given him a life buoy. It seems that France can get out of the predicament and solve the financing problem of national debt by establishing a bank that can fully supply money. For the powerful Duke of Oren, as long as he can get the money, it is not a problem to set up 10 banks. Therefore, under the franchise of the French government, john law established a private bank-Bangue Genarale in Paris on 17 16. This bank has the privilege of issuing currency, which can be used to exchange coins and pay taxes. After the establishment of the general bank, it was very successful and its total assets increased rapidly. 17 17 In August, john law won the Louisiana trade concession and the Canadian fur trade monopoly. At that time, Louisiana in North America belonged to France. Because Louisiana is located in the Mississippi River valley, people call the bubble economy directed by john law the Mississippi bubble. Subsequently, john law set up an accident company. The company obtained the exclusive right of tobacco on 17 18. 1718165438+10, the Senegalese company was established, responsible for trade with Africa. 17 19, john law merged the East India Company and China Company and renamed it Compagnie des Indes, which monopolized all French trade outside Europe. John law's monopolistic overseas trade has brought his company excessive profits.
17 18 12.4, General Bank was nationalized and renamed Banque Royale, and john law still served as the head of the bank. Royal Bank began to issue Riefler banknotes in 17 19. John law attacked at the same time on the two fronts of trade and finance, winning one after another and gaining popularity. John law hopes to stimulate the economy by issuing currency and reduce the heavy burden of French national debt. The time has finally come to practice his financial theory.
Financial bubbles are short-lived.
1765438+On July 25th, 2009, john law paid 50 million livres to the French government and won the contract right of the Royal Mint. In order to obtain the right to mint new coins, Indian companies issued 50,000 shares, each with a face value of 65,438+0,000 Riffle. John law's stock was very popular in the market, and its share price soon rose to 1 800 Riffle.
1765438+In August 2009, john law obtained the right to levy indirect taxes on cultivated land. John law believes that there are serious drawbacks in the French tax system, such as high tax cost and too many loopholes, which directly affect the French government's fiscal revenue. John law suggested to the government to contract the indirect tax on farmland in France, and pay 5,300 Wan Li francs to the government every year. If the tax collected exceeds this figure, it will be owned by Indian companies. Since this figure is much higher than the total tax revenue of the French government, why not count the Duke of Orion? Under the auspices of john law, Indian companies simplified the tax collection agencies, reduced the cost of tax collection, tried their best to expand the tax base, and cancelled the tax-free treatment of royalties. Of course, john law offended many aristocratic strongmen. The popularity of Indian companies in France has prompted their share prices to rise again and again. 17 19 10, the Indian company in John Law took over the French direct tax collection, and its share price exceeded 3,000 Riffle.
17 19 john law decided to repay 654,380.5 billion Riffle's national debt by issuing shares through Indian companies. To this end, Indian companies issued shares on a large scale for three consecutive times:1712 in September 2009, and issued100000 shares, each with a par value of 5,000 Riffle. Stocks were snapped up as soon as they went public. The stock price soared.
On September 28th, 2009, Indian companies issued another 654.38 million shares, each with a par value of 5,000 Wan Li? t？ 7 19, 10, 10, and 654.38+million shares were issued on October 2. As soon as the stock price rises, it rises again and continues to rise. The par value of Indian companies' shares was only 500 Riffle in April of 17 19, and it was hyped to 18 000 Riffle in half a year.
/kloc-at the beginning of 0/720, John Lauda reached the peak of his life. John law was appointed French Comptroller and Inspector General. On the one hand, he was in charge of government finance and currency issuance of Royal Bank, on the other hand, he controlled French overseas trade and colonial development. He and his Indian company are responsible for collecting taxes for France and holding a large amount of national debt. Subsequently, the Indian company simply took over the management right of Royal Bank. Never in human history has an economist had such a good opportunity to practice his theory. The share price of Indian companies soared, attracting a large amount of funds from European countries to flow into France. In order to boost the stock market of Indian companies, john law announced that its stock dividend has nothing to do with the real prospects of the company. His unfathomable statement further encouraged people's speculation. Unprecedented speculation will inevitably greatly promote the demand for money. Therefore, as long as Indian companies issue shares, Royal Bank will follow suit and issue currency. Every stock issue is accompanied by the issuance of money. John law firmly believes that it is possible to issue bank notes → exchange them for stocks → and finally offset the national debt. 1765438+On July 25th, 2009, Royal Bank issued 240 million Riffle dollars to pay for the 65438+5900 Wan Li Foer shares previously issued by Indian companies. 17 19 September and 10/0 October, Royal Bank issued another 240 million livres.
As Friedman pointed out, inflation is ultimately a monetary phenomenon. After issuing a large amount of money, after a short lag period, inflation finally came to France. The inflation rate in France was 4% in 17 19 and rose to 23% in 1720 and 1 year. If only some economists expressed doubts about john law's policy before 1720, inflation directly sounded the alarm for the general public. With the shake of public confidence, the share price of Indian companies began to plummet at 1720+0.
In order to maintain the share price of Indian companies, John Labor used his financial power. He forced the stock price to be set at 9000 Riffle, and kept it at this price for more than two months. John law's policies monetized stocks, which in turn quickly pushed up inflation. On March 25th 1720, currency issuance increased by 300 million livres, on April 5th 1720, by 390 million livres, and on May 5th 1720, by 438 million livres. In more than a month, the currency circulation has doubled.
By May of 1720, John Law really couldn't survive. He issued a stock depreciation order, and planned to reduce the stock price from 9,000 Riffle to 5,000 Riffle in seven stages, and also reduced the face value of paper money. The myth that john law and his Indian company created an economic miracle was suddenly shattered. John law's instructions immediately caused panic among people, who were eager to sell their shares to save their assets. The stock price fell to 2,000 livres on September 1720, to 1 000 livres on February 2, and to 500 livres on September 172 1, returning to the level of1765438+May 2009.
John law tried his best to restore people's confidence, but his voice was soon drowned out by people's roar. The French who lost everything in the stock market crash decided that john law was the number one liar. 1720 john law is like a mouse crossing the street, and everyone shouts. During the siege, he did the same thing and left Belgium overnight. The payment method in France has returned to the old system based on coins. Because of the bankruptcy of the Mississippi bubble, the word "bank" has been cursed in France for a century. Nine years later, john law died in his hometown with endless regrets.
Although john law's bold practice was a complete failure, we can't waste our breath with others. John law's economic theory contains many reasonable factors, and his contribution to financial theory is indelible. In john law's time, it was impossible for him to understand the bubble economy and related rational expectation theory. When he expanded the money supply, he didn't expect it to lead to a wave of financial speculation. He didn't stop this kind of financial speculation in time, on the contrary, he added fuel to the fire to a considerable extent, and finally made the overall corruption out of control.