WEBVTT - How an Austrian Economist Explains The Tulip Bubble 0:00:09.560 --> 0:00:12.920 Hello, and welcome to another episode of the Odd Thoughts Podcast. 0:00:12.960 --> 0:00:17.080 I'm Tracy Alloway and I'm Joe Wisenthal. So, Joe, did 0:00:17.079 --> 0:00:20.960 you know I went to Amsterdam this summer. I think 0:00:21.000 --> 0:00:26.720 I recall seeing some instagrams that look pretty awesome. Okay, well, yes, 0:00:26.800 --> 0:00:30.800 the instagrams were awesome because it's a really gorgeous city. Um, 0:00:30.800 --> 0:00:35.200 but I gotta say they take flowers pretty seriously there. 0:00:35.760 --> 0:00:38.280 I'm pretty sure that's one of the things too that 0:00:38.400 --> 0:00:41.519 I remember from your instagram, Like, and that's sort of 0:00:41.560 --> 0:00:44.680 like they're sort of famous for that, like just gorgeous, 0:00:44.960 --> 0:00:52.560 gorgeous horticulture, horticulture of all types. Yeah, but two lips 0:00:52.640 --> 0:00:55.680 is clearly a big part of that in Amsterdam. In 0:00:55.760 --> 0:00:59.560 Holland is famous for growing varieties of tulips and an 0:00:59.560 --> 0:01:02.280 amster um. They even have a tulip museum that I 0:01:02.320 --> 0:01:05.119 actually went to. I kind of think I know where 0:01:05.120 --> 0:01:08.320 we're going with this, because we're still part of our 0:01:08.440 --> 0:01:12.560 our Bubble series of episodes where we look at famous 0:01:12.600 --> 0:01:16.679 bubbles throughout history, and of course you're talking about Amsterdam tulips. 0:01:17.360 --> 0:01:20.200 That's right, And we actually already teased this one in 0:01:20.280 --> 0:01:23.199 some of our previous episodes. I think I actually called 0:01:23.200 --> 0:01:28.600 it the quintessential financial bubble, which isn't entirely correct, I 0:01:28.640 --> 0:01:32.240 have to say, because although tulip Mania has a reputation 0:01:32.600 --> 0:01:36.160 as one of the first ever financial asset bubbles, there 0:01:36.200 --> 0:01:39.080 are a lot of people that take issue with that 0:01:39.160 --> 0:01:42.120 description and actually say it wasn't a bubble at all. 0:01:42.200 --> 0:01:46.800 It was a rational investing behavior for the time. Yeah, 0:01:46.880 --> 0:01:50.320 it's very controversial because, first of all, it is in 0:01:50.320 --> 0:01:53.320 in this sort of pop culture since probably the quintessential bubble. 0:01:53.320 --> 0:01:58.120 Whenever you talk about another bubble, you always hear people say, oh, 0:01:58.160 --> 0:02:00.480 this is Tulips all over again. So I when you know, 0:02:00.520 --> 0:02:03.520 when we talked about the beanie baby bubble on an 0:02:03.520 --> 0:02:05.680 episode long time ago, like oh, this is the new 0:02:06.280 --> 0:02:08.640 uh tulips whatever it is, people would just sort of 0:02:08.680 --> 0:02:13.320 no tulips. But it is a very controversial episode throughout history. 0:02:13.360 --> 0:02:16.640 Obviously it was prior to a lot of the financial press, 0:02:16.680 --> 0:02:20.880 so there's still a lot of examination of what really happened. Yeah, 0:02:20.960 --> 0:02:23.000 and um, let me just lay the scene, I guess 0:02:23.320 --> 0:02:27.000 before we dig into it. So in the sixteen hundreds, 0:02:27.320 --> 0:02:30.400 tulips became this massive thing in Holland. As we all know, 0:02:30.520 --> 0:02:34.800 and there are these famous statistics about a single rare 0:02:35.000 --> 0:02:39.240 bulb trading for the price of a whole house in Amsterdam, 0:02:39.400 --> 0:02:43.520 or one bulb being worth twelve acres of land, that 0:02:43.680 --> 0:02:46.640 sort of thing. Um, And when we look at it retrospectively, 0:02:46.720 --> 0:02:49.200 we think, why in the world where people paying that 0:02:49.280 --> 0:02:53.160 kind of money for what was basically an ephemeral thing. Right, 0:02:53.200 --> 0:02:55.040 you have the tulip. It lasts for a little while, 0:02:55.120 --> 0:02:57.480 but then eventually the flower dies and unless you grow 0:02:57.520 --> 0:03:00.080 some more tulips out of it, it's this thing. It 0:03:00.160 --> 0:03:03.560 just passes by really quickly. That's absolutely right. But you know, 0:03:03.639 --> 0:03:07.360 like it's funny because obviously supposedly people paid all this 0:03:07.400 --> 0:03:10.240 price for tulip bulbs. But they are really beautiful, so 0:03:10.320 --> 0:03:12.160 sometimes I wonder if he is worth it. I mean, 0:03:12.200 --> 0:03:14.600 they're really nice, and you have to figure, like most 0:03:14.600 --> 0:03:17.680 things didn't look very good back then, you know, everything 0:03:17.840 --> 0:03:20.639 sort of grimy and life was dirty, like maybe it 0:03:20.720 --> 0:03:24.120 was worth it. That's the romantic in YouTube. All right, 0:03:24.639 --> 0:03:27.080 So we're actually going to look at the tulip bubble today, 0:03:27.080 --> 0:03:29.079 but we're going to look at it from a slightly 0:03:29.400 --> 0:03:33.000 different angle. Um. Never let it be said that we 0:03:33.040 --> 0:03:36.080 don't bring you something, uh, something unique on the All 0:03:36.160 --> 0:03:38.920 Thoughts podcast today, we're actually going to be looking at 0:03:38.920 --> 0:03:43.320 the Tulip bubble from a sort of Austrian school of 0:03:43.400 --> 0:03:47.480 economics theory. This should be good. So we're taking one 0:03:47.480 --> 0:03:50.320 of the most sort of controversial bubbles and we're going 0:03:50.360 --> 0:03:53.840 to look at it through the lens of perhaps one 0:03:53.880 --> 0:03:57.920 of the most polarizing schools of economics. So I feel 0:03:57.960 --> 0:04:00.120 like that should be a that's a win combination and 0:04:00.200 --> 0:04:02.720 right there. Yeah, And can I just say the Austrian 0:04:02.760 --> 0:04:05.320 school of economics is the only one that my dad, 0:04:05.400 --> 0:04:09.600 who is my barometer for all things sort of mainstream America, 0:04:09.680 --> 0:04:11.760 has ever asked me about. He never asked me about 0:04:11.840 --> 0:04:15.720 canes or monetarism or anything like that. Only the Austrian 0:04:15.720 --> 0:04:18.960 school economics. I suspect to like this episode. Then, yeah, 0:04:19.080 --> 0:04:22.840 all right with us to discuss the Tulip bubble is 0:04:23.080 --> 0:04:26.599 Doug French. He is the author of a book called 0:04:26.680 --> 0:04:31.000 Early Speculative Bubbles and Increases in the Money Supply. So 0:04:31.080 --> 0:04:45.440 you can sense the Austrian school right there in the title. Doug, 0:04:45.520 --> 0:04:48.440 thanks so much for joining us today. It's my pleasure. 0:04:48.520 --> 0:04:51.280 Joe and Tracy. Let's start with you know, we were 0:04:51.360 --> 0:04:56.160 describing the tulip bubble as the sort of classical market bubble. 0:04:56.520 --> 0:05:00.279 Walk us through some of the mainstream theories behind mind 0:05:00.600 --> 0:05:05.599 why it actually happened. Well, the mainstream theory is typically 0:05:06.560 --> 0:05:10.640 a gentleman by the name of the Gerber, who has 0:05:10.680 --> 0:05:14.240 done a lot of work on to Lokmania, and his 0:05:14.360 --> 0:05:19.160 view is that the rarer bulbs tended to trade higher 0:05:19.240 --> 0:05:23.159 than the more common bulbs, and therefore, you know, it 0:05:23.279 --> 0:05:27.000 was very rational that people would you know, trade up 0:05:28.160 --> 0:05:31.520 to a very high price these more rare bubbles. Her 0:05:31.760 --> 0:05:36.360 these more rare bulbs, I should say. He also would 0:05:36.400 --> 0:05:40.719 throw in the idea that there was a plague and 0:05:40.839 --> 0:05:46.680 that essentially this was it was kness, animal spirits in 0:05:46.720 --> 0:05:49.480 a way that people were just throwing caution to the wind. 0:05:49.520 --> 0:05:51.800 We're all going to die from the plague anyway, so 0:05:51.880 --> 0:05:56.479 let's let's trade in trade in tulips. So that was 0:05:56.960 --> 0:06:01.720 kind of Gerber's view. Another view is a woman by 0:06:01.720 --> 0:06:04.680 the name of Van Bulgar. She wrote a book to 0:06:04.920 --> 0:06:09.320 let Mania there's fairly recent two thousand and seven, and 0:06:09.400 --> 0:06:12.560 she said this is very limited and there were only 0:06:12.600 --> 0:06:16.320 really about four hundred families who were trading involves and 0:06:16.400 --> 0:06:23.279 it was an extension of their art collections. Essentially, she 0:06:23.400 --> 0:06:26.760 believed that it was really no big deal. A few 0:06:26.800 --> 0:06:30.800 people were trading in these bulbs and no one was 0:06:30.880 --> 0:06:33.800 hurt by it. There was no big financial crash that 0:06:34.000 --> 0:06:37.320 we saw someone to say two thousand and two thousand nine, 0:06:37.400 --> 0:06:41.480 and in the United States after the housing bubbles. So um, 0:06:41.800 --> 0:06:46.920 those are generally the it's it's viewed as a curiosity. UM. 0:06:46.960 --> 0:06:52.200 In fact, Charles kenner Barger, who who wrote on manias 0:06:52.320 --> 0:06:59.359 and crashes, um, he he refers to the two let 0:06:59.440 --> 0:07:05.880 Mania is really the first uh Mania, first speckled Mania. 0:07:05.960 --> 0:07:10.920 But he said that it lacked the the financial framework 0:07:11.040 --> 0:07:15.320 that you normally would have. And of course that's when 0:07:16.480 --> 0:07:20.240 when I did my work onto let Mania, looking at 0:07:20.280 --> 0:07:24.080 it through the Austrian lens, as you put it, UM, 0:07:24.200 --> 0:07:26.960 I found out that there was a financial aspect to 0:07:27.080 --> 0:07:33.520 this and um, and that's where the Austrians picked this up. So, Doug, 0:07:33.600 --> 0:07:36.840 I want to ask you, of course, what you see 0:07:36.840 --> 0:07:41.200 as the seeds of to Lippmania. But before I do that, 0:07:41.800 --> 0:07:46.520 for our listeners who are perhaps unfamiliar, give us the 0:07:46.680 --> 0:07:51.520 sort of nineties second characterization of what what Austrian economics 0:07:51.600 --> 0:07:54.920 is all about. So that when we talk about examining 0:07:55.000 --> 0:07:58.360 to Lipmania from the Austrian perspective, what are the key 0:07:58.480 --> 0:08:03.840 ideas and tools that you use to examine this historical episode. Well, 0:08:03.920 --> 0:08:07.320 the key idea that I used from the Austrian school 0:08:07.440 --> 0:08:11.440 was the Austrian business cycle. And that's what the Austrian 0:08:11.480 --> 0:08:15.200 school is is most known for. That's what fa Hiak 0:08:15.800 --> 0:08:21.560 shared the Nobel Prize for nine four UM. He extended 0:08:21.680 --> 0:08:27.400 Ludwig von Mesus work on the on the business cycle, 0:08:27.560 --> 0:08:31.520 and that is that business cycles aren't something that just 0:08:31.640 --> 0:08:35.920 come and go as most people think. They're like like nature, 0:08:36.160 --> 0:08:41.000 like the seasons, things like that. It has to do 0:08:41.080 --> 0:08:46.680 with the government intervention um in the money supply, and 0:08:47.000 --> 0:08:51.760 when in the modern debut of this, the Federal Reserve 0:08:51.880 --> 0:08:57.920 lowers interest rates, expands the money supply, and uh malinvestments 0:08:57.960 --> 0:09:02.280 are created. In other words, entrepreneurs are fooled by the 0:09:02.320 --> 0:09:04.560 low interest rates. They believe that there's a lot of 0:09:04.600 --> 0:09:09.160 savings out there. They believe that there's tremendous need for 0:09:09.320 --> 0:09:15.840 what the Austrians would call higher end UH investments, say land, 0:09:16.480 --> 0:09:22.280 say housing subdivisions, say casinos, things like that, and therefore 0:09:22.440 --> 0:09:27.920 you you get money rolling into uh uh those sorts 0:09:28.000 --> 0:09:35.160 of investments and uh eventually the demand that the entrepreneurs 0:09:35.160 --> 0:09:39.680 thought collectively was there ends up not being there. And 0:09:40.200 --> 0:09:44.240 we see this, just this mass number of errors all 0:09:44.280 --> 0:09:47.520 at once. You wouldn't see this in capitalism. You see 0:09:47.520 --> 0:09:52.480 bankruptcies all the time when um, when entrepreneurs are not 0:09:53.240 --> 0:09:56.640 are not good at what they're doing. But in a 0:09:56.720 --> 0:10:02.000 boom and a bust, booms telling elevate those that aren't 0:10:02.120 --> 0:10:06.880 very good um at at development, and it exposes them 0:10:07.800 --> 0:10:11.920 when the crash comes. That's uh, I think what the 0:10:12.000 --> 0:10:17.520 Austrian school is most most known for. And just as 0:10:17.559 --> 0:10:20.760 a note, the book I wrote, the book that we 0:10:20.800 --> 0:10:25.840 referred to earlier, I wrote under the direction of Murray Rothbard, 0:10:26.240 --> 0:10:30.120 who was a student of Ludwig van Mesas. So I'm 0:10:30.200 --> 0:10:36.320 just carrying on um very long and u and famous tradition. 0:10:37.080 --> 0:10:39.960 So walk us through. So that was a great overview, 0:10:40.000 --> 0:10:44.320 but walk us through how that framework informs your thinking 0:10:44.360 --> 0:10:49.000 about the tulip bubble. Well, as I looked at as 0:10:49.040 --> 0:10:53.520 I looked at tulip mania UM, and I looked at 0:10:53.600 --> 0:10:56.960 obviously everyone's work, and you kind of start with a 0:10:56.960 --> 0:10:59.959 book that a lot of people have heard of extraordinar 0:11:00.000 --> 0:11:03.839 are any popular delusions and the Madness of crowds. It's 0:11:03.840 --> 0:11:09.319 an eight book by Charles Mackay, and people have been 0:11:09.360 --> 0:11:13.920 reading this for, you know, for decades, and uh it 0:11:14.040 --> 0:11:18.280 has a few pages in it about to LITMANI and 0:11:18.400 --> 0:11:22.440 that's generally where people start. And the idea is that 0:11:22.720 --> 0:11:25.960 suddenly people were trading into la bulbs, whether they be 0:11:26.080 --> 0:11:29.760 chimney sweeps or whether they be government officials or whatever 0:11:29.800 --> 0:11:33.600 they may be. And it just you start thinking, well, 0:11:33.800 --> 0:11:39.600 is this is this uh animal spirits in the Keynesian view, 0:11:39.960 --> 0:11:45.080 is it doesn't make sense? In the rational expectations view 0:11:45.200 --> 0:11:49.760 of a of a Gerber who is essentially g it 0:11:49.880 --> 0:11:54.920 made perfect sense. Uh, supply and demand. There were less 0:11:54.920 --> 0:11:59.000 supply of the of the bulbs that were rare. They 0:11:59.040 --> 0:12:02.720 are more supplied other boats, and and those prices didn't 0:12:02.720 --> 0:12:07.520 go up. But I looked for another cause. And it 0:12:07.559 --> 0:12:12.880 turns out that the money supply in Amsterdam during Tolmania 0:12:13.400 --> 0:12:18.280 exploded and exploded for a good reason. It was the 0:12:18.320 --> 0:12:23.280 Bank of Amsterdam was created, and not that it created 0:12:23.360 --> 0:12:27.560 money out of nowhere like modern central banks do. It 0:12:27.720 --> 0:12:32.680 actually offered something called free coinage and free coinage was 0:12:33.120 --> 0:12:38.120 all money from Europe was flooding into Amsterdam because of 0:12:38.600 --> 0:12:42.920 gold and silver discoveries in the New World. UH pirates 0:12:43.000 --> 0:12:48.520 were collecting booty on the high seas. There were coins 0:12:48.559 --> 0:12:53.880 that had been debauched by various kings throughout Europe and 0:12:54.000 --> 0:12:58.360 they were all flooding into Amsterdam because the Bank of 0:12:58.360 --> 0:13:02.800 Amsterdam would in them for little or no fee. And 0:13:02.840 --> 0:13:08.440 that was essentially a that was essentially what created a 0:13:08.600 --> 0:13:11.680 huge boom and the money supply. And when I say 0:13:11.720 --> 0:13:15.880 a huge boom, I mean increase in the supply of 0:13:15.960 --> 0:13:25.559 money right before UH to Lootmania occurred the Dutch economy. 0:13:26.280 --> 0:13:32.720 Obviously Amsterdam's very well located to Seaport, there was much 0:13:32.760 --> 0:13:37.240 commerce going on there. It began to boom in one 0:13:37.320 --> 0:13:42.560 and thirty two. And with all this money UH flowing 0:13:42.640 --> 0:13:49.000 into the economy, it created a a ripe environment for 0:13:49.480 --> 0:13:54.960 speculation UH from all types of people, whether they be 0:13:55.080 --> 0:14:01.880 the gold guards, Mennonite art collectors, or whether they I'm 0:14:01.880 --> 0:14:06.400 not sure there were necessarily chimneys, sweets that we're buying balls, 0:14:06.440 --> 0:14:10.400 but all sorts of people UH as they want to 0:14:10.440 --> 0:14:14.319 do when when things are going good, they want to 0:14:14.320 --> 0:14:28.120 speculate and trade and make a profit. So, Doug, here 0:14:28.400 --> 0:14:31.760 is a question that I have and I've had this 0:14:31.920 --> 0:14:35.960 thought in regards to sort of Austrian theories of bubbles 0:14:36.040 --> 0:14:39.560 even more even more in the contemporary setting. So you 0:14:39.720 --> 0:14:44.480 draw the line between the central Bank or in that case, 0:14:44.480 --> 0:14:47.560 the Bank of Amsterdam creating some sort of ultra loose 0:14:47.680 --> 0:14:51.680 monetary conditions that brings in the conditions where people want 0:14:51.720 --> 0:14:57.440 to speculate. But what I don't fully understand is why 0:14:57.560 --> 0:15:02.680 does it go to these activities that appear so bubbly. 0:15:02.800 --> 0:15:05.360 So it's one thing to say, Okay, that's going to 0:15:05.400 --> 0:15:09.200 create a lot of activity, but why couldn't it theoretically 0:15:09.560 --> 0:15:13.720 go to um more conventional enterprises like opening up you know, 0:15:13.760 --> 0:15:17.760 building new uh building new ships or sort of traditional channels. 0:15:17.800 --> 0:15:21.240 Why does it go towards uh, you know, flipping these assets, 0:15:21.600 --> 0:15:28.680 very speculative vehicles because more people can participate UM in 0:15:28.800 --> 0:15:32.640 trading tula bolts, whereas it would have been more difficult too. 0:15:33.120 --> 0:15:36.840 And I'm sure there was more money was funneled into 0:15:37.360 --> 0:15:40.440 into shipping, but not not a lot of people. Could 0:15:42.040 --> 0:15:45.920 you know, flip clipper ships, uh if you will at 0:15:45.920 --> 0:15:48.800 the time, but you know, if you could get get 0:15:48.920 --> 0:15:52.840 a hold of a tulip here there, Um you might 0:15:52.880 --> 0:15:56.800 be able to um, you might be able to flip 0:15:56.840 --> 0:16:02.120 it by the next the more popular tulip and trade 0:16:02.160 --> 0:16:06.200 from there. These uh, these traits took place in taverns. 0:16:06.440 --> 0:16:13.160 They were called colleges. Interestingly enough, um, the Dutch were 0:16:13.240 --> 0:16:18.680 already very astute in futures markets, in the grains and 0:16:18.760 --> 0:16:24.000 so on, So futures market took hold very quickly. And 0:16:24.080 --> 0:16:27.280 as you can imagine, they weren't trading flowers. They were 0:16:27.320 --> 0:16:30.200 trading the bulbs, and the bulbs were in the ground, 0:16:31.000 --> 0:16:34.840 so before ever anybody ever saw the flower, it was 0:16:34.920 --> 0:16:38.600 being bought and sold many different times. And so I 0:16:38.640 --> 0:16:41.800 think when when people think of Tulamania, they think, oh, 0:16:41.880 --> 0:16:45.040 you know, they were trading these flowers that we're only 0:16:45.080 --> 0:16:47.200 going to be in bloom for a week or whatever. 0:16:48.320 --> 0:16:51.240 But no, they were trading the bulbs that were that 0:16:51.320 --> 0:16:55.400 were in the ground, uh, you know, months before before 0:16:55.400 --> 0:16:57.040 they would see them. And that's why it was a 0:16:57.120 --> 0:17:02.560 fairly short short term. Episode went from essentially six thirty 0:17:02.600 --> 0:17:06.920 four to February of thirty seven. But at the end 0:17:07.040 --> 0:17:10.080 you had this huge blow off top where the wet 0:17:10.520 --> 0:17:14.600 wheat crew and bulb went up thirty five times in 0:17:14.680 --> 0:17:18.439 the space of a month and then crashed, you know, 0:17:18.520 --> 0:17:23.159 in one single day. But that's an answer to your question. Uh, 0:17:23.480 --> 0:17:28.600 you know, the more people could participate um in a 0:17:28.640 --> 0:17:31.640 trading instrument like a tulip bulb. Also two loops were 0:17:31.680 --> 0:17:36.160 fairly new to Amsterdam, although you know, um, as Tracy said, 0:17:36.760 --> 0:17:41.200 the town is is certainly known for it now. Um. 0:17:41.280 --> 0:17:46.800 And you see pictures in the fields of tulips are extraordinary, 0:17:47.600 --> 0:17:51.080 but they were actually shipped in from from Turkey, in 0:17:51.119 --> 0:17:54.080 the Middle East and other places, so they're a fairly 0:17:54.160 --> 0:18:01.040 new phenomenon um to to Amsterdam at the time. Yes, 0:18:01.160 --> 0:18:03.879 and one thing I learned from the Amsterdam Tulip Museum 0:18:03.960 --> 0:18:07.840 is that the tulips were highly associated with Orientalism at 0:18:07.840 --> 0:18:10.600 the time, probably because they were coming through the Middle East. 0:18:10.640 --> 0:18:14.040 So c Joe, I did learn something, Um, I've never 0:18:14.160 --> 0:18:19.040 doubted that something, Uh, Doug, I wanted to ask you 0:18:19.480 --> 0:18:23.800 or just press you on the association between the tulip 0:18:23.880 --> 0:18:27.920 mania and the money supply because you know. One other 0:18:28.000 --> 0:18:31.240 thing I also learned was that the Dutch at the 0:18:31.320 --> 0:18:35.240 time they kind of described this tulip trading as wind handle, 0:18:35.400 --> 0:18:40.440 which means wind trade in Dutch, because no bulbs or 0:18:40.520 --> 0:18:43.119 not many bulbs were actually changing hands. People were just 0:18:43.280 --> 0:18:46.720 kind of trading the futures contracts. So I'm just wondering 0:18:46.840 --> 0:18:50.920 if you're if you're trading this thing, but you're not 0:18:51.080 --> 0:18:55.639 actually trading the underlying what's the association with the money supply? 0:18:55.880 --> 0:18:59.360 Does it track like one for one? No, I don't 0:18:59.400 --> 0:19:04.320 think a track x one for one, but um, it 0:19:04.840 --> 0:19:11.399 does um give people the confidence to um trade in 0:19:12.240 --> 0:19:16.800 in a speculative fashion because there's more money runs into 0:19:17.880 --> 0:19:22.160 uh into an economy. Um, and people see their neighbors 0:19:23.240 --> 0:19:28.600 getting rich and certainly uh they want to as well. Uh, 0:19:28.760 --> 0:19:32.119 they're more apt to get involved in this sort of 0:19:33.359 --> 0:19:37.280 sort of speculation. I mean, when you create money, um, 0:19:38.160 --> 0:19:42.080 there's no telling where it would go and um so 0:19:42.880 --> 0:19:46.320 um whether it goes into goods and services or where 0:19:46.320 --> 0:19:49.720 there goes into speculation. But then the next step in 0:19:49.840 --> 0:19:56.479 this is that then leverages created people want to essentially borrow. 0:19:57.200 --> 0:20:00.320 And as you point out, these bulls were changing hands 0:20:01.440 --> 0:20:06.760 without really changing hands, just the paper was was changing hands, 0:20:06.800 --> 0:20:12.440 and that was essentially that's essentially the leverage that was involved, 0:20:12.560 --> 0:20:18.800 and that happens in all all speculative bubbles. Um, the 0:20:18.960 --> 0:20:22.280 interest rates went down. When you look at the history 0:20:22.320 --> 0:20:27.680 of interest rates by Homer and Encilla, Um, the Dutch 0:20:27.800 --> 0:20:31.800 interest rates declined sharply. Um. There were a number of 0:20:31.880 --> 0:20:36.280 bankruptcies after this. Uh. In my book, UM, you know, 0:20:36.440 --> 0:20:39.480 if it was if people were just trading a few 0:20:39.520 --> 0:20:43.359 evolves and and uh G it didn't work out and 0:20:43.440 --> 0:20:46.040 they all went on about their business, then why did 0:20:46.119 --> 0:20:51.120 the number of bankruptcies in Amsterdam double from nine six 0:20:52.080 --> 0:20:57.960 to sixteen thirty seven. So clearly people were putting a 0:20:58.119 --> 0:21:04.359 lot of resources into speculating in these uh in these bubbles, 0:21:04.440 --> 0:21:07.440 and it had a It had a huge effect on 0:21:08.000 --> 0:21:12.200 the economy. And I will say your timing is excellent. 0:21:12.320 --> 0:21:13.920 I don't know if you know this, but there is 0:21:13.960 --> 0:21:17.280 a movie coming out called The Two Little Fever. I 0:21:17.280 --> 0:21:19.760 would just going to say, I've actually seen that movie 0:21:19.800 --> 0:21:24.080 because I saw a a screening for reviewers and I 0:21:24.480 --> 0:21:26.800 have a review out actually, and so I wanted to 0:21:26.880 --> 0:21:29.359 ask you something about the film, and you talked about 0:21:29.440 --> 0:21:30.840 half of it, but to me was one of the 0:21:30.920 --> 0:21:34.760 most interesting things in there. So as you mentioned, uh, 0:21:34.880 --> 0:21:38.360 and this was depicted in the film. The trading took 0:21:38.400 --> 0:21:42.880 place in taverns, the trading of these essentially tulip bulb futures. 0:21:43.280 --> 0:21:45.880 These were a lot of you know, sort of drunken 0:21:46.000 --> 0:21:49.600 people are very you know, they're they're taverns. However, the 0:21:49.680 --> 0:21:53.280 actual bulbs themselves, and this is according to the film, 0:21:53.400 --> 0:21:55.480 So if I'm wrong on this, please call me out. 0:21:56.000 --> 0:22:01.040 The bulbs themselves were actually uh maintained by nuns in 0:22:01.119 --> 0:22:04.480 an abbey. And so you really have this dichotomy between 0:22:04.520 --> 0:22:07.280 where the finance takes place, which is this sort of 0:22:07.400 --> 0:22:13.680 like dirty, debaucherous tavern, but then the actual product, essentially 0:22:13.880 --> 0:22:17.240 in this house of God. It really showing the h 0:22:17.680 --> 0:22:22.160 the secret and the profane meeting together in this trade. Well, 0:22:22.280 --> 0:22:26.480 I think the uh, either the movie make or or 0:22:28.040 --> 0:22:32.120 MS Mogash took a little bit of license there, uh 0:22:33.119 --> 0:22:37.840 where the with where the bulls were stored. I'm but 0:22:38.240 --> 0:22:43.879 I have no uh direct knowledge to refute that. So 0:22:44.280 --> 0:22:47.680 possibly it's true, It's just but it is it is 0:22:47.720 --> 0:22:52.480 a guest. But I've read the book. It's a wonderful book, 0:22:53.280 --> 0:22:57.800 and Steven Spielberg had actually bought bought the rights back 0:22:57.840 --> 0:23:00.960 in ninety nine before the book even came out out. Um, 0:23:01.080 --> 0:23:03.760 and then I think it's changed hands similar to the 0:23:03.880 --> 0:23:06.920 changing hands of a of a tula bulb, if you will. 0:23:07.440 --> 0:23:11.720 And tulip Tulip fever has at a hard time getting 0:23:11.760 --> 0:23:13.760 off the ground, if you will. But it has a 0:23:13.840 --> 0:23:19.520 wonderful cast. And um, but I think what it depicts, 0:23:20.359 --> 0:23:23.280 I hope it depicts. And and Joe, maybe you can 0:23:23.359 --> 0:23:26.959 confirm this since you've seen the movie. But this artist 0:23:28.600 --> 0:23:32.080 who has an extraordinary talent, and of course his subject 0:23:32.200 --> 0:23:36.000 is the love of his life and um, and of 0:23:36.080 --> 0:23:38.880 course that creates tensions since she's married to an old 0:23:38.960 --> 0:23:45.600 evil guy. Um, but he drops his trade to trade 0:23:45.640 --> 0:23:47.960 in tulips. He thinks they're going to get rich and 0:23:48.040 --> 0:23:52.360 live happily ever after trading tulips. And that's what happens 0:23:52.640 --> 0:23:55.720 during booms and bus uh. And I'm sure it happened 0:23:55.760 --> 0:23:59.560 during Tulamania. We saw this in Vegas when houses boomed 0:23:59.600 --> 0:24:04.160 in the Men two thousand's, people who had perfectly reasonable 0:24:04.320 --> 0:24:09.640 jobs suddenly became realtors or house flippers, were um door 0:24:10.240 --> 0:24:14.000 or became mortgage agents. And that's what happens, uh in 0:24:14.119 --> 0:24:17.400 all boons. That not only there's not only the trading 0:24:17.440 --> 0:24:21.199 of the bulbs or the trading of the instrument. Uh. 0:24:21.760 --> 0:24:26.680 But but people whose talents are best left for, um, 0:24:27.440 --> 0:24:31.000 other things, they become involved in this boom. And I 0:24:31.160 --> 0:24:34.040 think it portrays that. That's a great point that was 0:24:34.160 --> 0:24:36.359 portrayed in the film, and that didn't click to me 0:24:36.440 --> 0:24:38.760 at the time. But of course, as we've seen through 0:24:38.800 --> 0:24:41.600 many bubbles in history, it does seem to be a 0:24:41.680 --> 0:24:45.800 common phenomenon, whether it's day trading in the late nineties, 0:24:46.200 --> 0:24:50.680 house flipping prior to the two thousand and eight financial crisis, 0:24:51.040 --> 0:24:54.720 whatever it is, there are always stories of people leaving 0:24:54.840 --> 0:24:59.159 their jobs essentially real resources, human resources being sucked out 0:24:59.160 --> 0:25:02.359 of where the most to engage in speculation. And that 0:25:02.560 --> 0:25:05.040 is indeed one of the points in the film. So 0:25:05.080 --> 0:25:08.320 I'm glad you brought that up, because that specific facet 0:25:08.480 --> 0:25:13.959 hadn't clicked. A misallocation of human and financial capital. Absolutely, 0:25:14.040 --> 0:25:18.320 they're both malinvestments. You had a malinvestment of of probably 0:25:18.400 --> 0:25:21.919 too many two loops were planted, um too many two 0:25:22.000 --> 0:25:25.720 loops were cultivated, and then you had the talent of 0:25:25.800 --> 0:25:31.280 individuals being siphoned off into this spacoidive area. And as 0:25:31.359 --> 0:25:35.879 Joe said, the same thing happens in all booms. Now, 0:25:36.040 --> 0:25:40.200 before we go One of the common themes things that 0:25:40.320 --> 0:25:42.520 we see with bubbles is that, you know, they can 0:25:42.760 --> 0:25:46.880 be based on sound fundamentals and they often several years later, 0:25:47.040 --> 0:25:50.080 can justify themselves. So obviously, you know the internet bubble 0:25:50.200 --> 0:25:53.240 of the late nineties, we know the internet did in 0:25:53.359 --> 0:25:55.719 fact turn out to be a big deal. The housing 0:25:55.760 --> 0:25:59.840 bubble did create a large housing stock, and as trace 0:26:00.080 --> 0:26:04.880 you mentioned in the introduction, Amsterdam today, you know it's 0:26:05.160 --> 0:26:08.439 still you know, there's a flow, a thriving, beautiful flower 0:26:08.520 --> 0:26:12.399 market still in Amsterdam. So what is the aftermath? Okay, 0:26:12.440 --> 0:26:17.080 then the bubble eventually crashed. You mentioned the bankruptcies. How 0:26:17.160 --> 0:26:23.879 did things eventually stabilize? Well, uh, Amsterdam obviously was a 0:26:24.040 --> 0:26:31.840 city that would eventually continue to thrive. The Bank of Amsterdam, however, changed. 0:26:32.520 --> 0:26:36.600 It had a very hard money policy. As I mentioned, 0:26:36.800 --> 0:26:41.400 free coinage. People would put their money in the bank, um, 0:26:41.920 --> 0:26:44.280 and so it was a hundred percent in bank, to 0:26:44.320 --> 0:26:47.080 which saw Austrians we we like that sort of thing 0:26:47.280 --> 0:26:51.960 rather than fractionalized banking that we have today. Um. But 0:26:52.080 --> 0:26:57.600 eventually the Bank of Amsterdam would begin to loan out 0:26:58.080 --> 0:27:02.320 their deposits and engage age in fractionalized banking and Uh. 0:27:03.320 --> 0:27:06.679 That Uh, that gave an idea to a gentleman by 0:27:06.720 --> 0:27:09.560 the name of John Law who would create a hundred 0:27:09.680 --> 0:27:13.360 years later, or about a hundred years later, the Mississippi 0:27:13.400 --> 0:27:17.080 Bubble that didn't spawned the south Sea Bubble. Uh. And 0:27:17.160 --> 0:27:19.880 I'm not sure you've gotten to those episodes yet, but uh, 0:27:21.000 --> 0:27:24.920 actually TULIPMANI in the Bank of Amsterdam is somewhat of 0:27:24.960 --> 0:27:28.520 a genesis for a gentleman named John Law. Well, I 0:27:28.600 --> 0:27:32.000 think that is a perfect way to end it. And Tracy, 0:27:32.119 --> 0:27:35.040 I think we have definitely have an episode that we 0:27:35.200 --> 0:27:39.000 have to do now. Yeah, so many bubbles, so little time. 0:27:39.200 --> 0:27:42.760 Doug French uh, the author of early speculative bubbles and 0:27:42.880 --> 0:27:45.119 increases in the money supply, thank you so much for 0:27:45.240 --> 0:27:48.400 joining us. Well, thank you, it's been a real pleasure. 0:27:58.240 --> 0:28:01.760 So Joe, I thought that was really fascinating. And I thought, 0:28:02.200 --> 0:28:04.359 you know, even though the Austrian school gets a lot 0:28:04.440 --> 0:28:08.080 of bad press, it's clearly had, you know, something of 0:28:08.160 --> 0:28:11.640 a revival or many people think it was vindicated after 0:28:11.720 --> 0:28:14.600 the two tho financial crisis. So I think it's really 0:28:14.680 --> 0:28:18.800 important to kind of consider some past bubbles, especially a 0:28:18.880 --> 0:28:22.800 bubble as important as the Tulip Mania through that framework. No, 0:28:22.920 --> 0:28:25.960 I totally agree. I I really enjoyed that. And it's interesting, Like, 0:28:26.080 --> 0:28:28.800 I think there's no question that in sort of mainstream 0:28:28.880 --> 0:28:33.680 economic discourse, Austrianism is considered to be crankish and all that, 0:28:34.119 --> 0:28:36.480