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Tulip mania was caused by the government changing futures contracts into options. The mania happened in these financial instruments, not actual tulip bulb pric

Tulip mania was caused by the government changing futures contracts into options. The mania happened in these financial instruments, not actual tulip bulb prices. https://en.wikipedia.org/wiki/Tulip_mania#Legal_changes https://en.wikipedia.org/wiki/Tulip_mania#Legal_changes Many bubbles are caused by government actions. Our own housing bubble was fomented by numerous bad policies. Bitcoin is not a creature of government but is actively opposed by many of them.

mads 9y ago
But it doesn't mean that the bubble is not there. Governments don't create bubbles. Human nature does.
- deleted 9y ago
  [deleted]
- Synaesthesia 9y ago
  If you’ve been in bitcoin long enough you’ve seen several boom/bust cycles, so it would hardly be surprising. And it’s auite unpredictable. Suppose the US enacted laws similar to what China just did, it could cause a crash. But I still thing they will always have some value.
- runeks 9y ago
  > Governments don't create bubbles. Human nature does. And yet, OP just provided evidence of a case where, previously, we assumed a specific asset bubble was caused by "human nature", but in fact it looks like it was created through the government inadvertently creating risk-free speculation in options contracts for this very asset.
runeks 9y ago
Clickable link: https://en.wikipedia.org/wiki/Tulip_mania#Legal_changes https://en.wikipedia.org/wiki/Tulip_mania#Legal_changes (for the copy/paste-challenged) By the way, this is a really interesting argument. I’m surprised it hasn’t be pointed out before. Paper link: https://link.springer.com/article/10.1007%2Fs11127-006-9074-4 https://link.springer.com/article/10.1007%2Fs11127-006-9074-...
- stretchwithme 9y ago
  I fixed the link. I guess indenting it defeated the autolinking.
heisenbit 9y ago
The wikipedia article lists several competing and complementing explanations without elevating one as the one and only true one. In systems with strong feedback it is very hard to know what is cause, what is effect and what was just a coincident.
- runeks 9y ago
  Don't rely on Wikipedia to tell you what the true explanation is. From the linked section: > If the price rose above 100 guilders, the speculator would pocket the difference as profit. If the price remained low, the speculator could void the contract for only 3½ guilders. The Dutch government enabled risk-free speculation in tulip options contracts (formerly futures contracts). How could the price of such a contract not rise under these circumstances?
  - dnautics 9y ago
    Sounds an awful more like the ways leverage (for wealthy speculators) is protected in our society. That has implications bforbthe stock market more than it does Bitcoin. Do we know about how much Bitcoin trading is done on leverage? I suspect it's relatively low (as securities go).
    - runeks 9y ago
      I don’t see any parallel in our currency financial system. If you know an investment where losses are limited to, at most, 3.5% and potential profit is unlimited, please let me know.
xvedejas 9y ago
So maybe bubbles are created by quick changes in the financial landscape, whether due to government or technology?
autokad 9y ago
you are correct that many (if not most) bubbles and crisis are created by governments, but in some of these cases this involves participants trying to avoid the government action. in these cases, bitcoin could be an example of that
touchofevil 9y ago
The Bitcoin bubble could still be the result of government action even though Bitcoin is not a creature of government. For example, if China is preventing its citizens from moving money offshore that action could result in a Bitcoin bubble as Chinese citizens use Bitcoin to work around government restrictions. Now that China is clamping down, the bubble (if there is one) could pop. The same thing has happened with Chinese buyers driving up the price of random short domain names. https://qz.com/581248/chinas-latest-investment-craze-is-short-domain-names/ https://qz.com/581248/chinas-latest-investment-craze-is-shor...
pfraze 9y ago
Your argument boils down to: Tulip Mania was caused by the govt, BtC isn't a govt system, therefore BtC can't be a bubble. Tulip Mania gets referenced because it's ridiculous on its face, but what about the Dot-com Bubble or Railway Mania? [1] Economic systems are a combination of markets and regulatory frameworks, and you can't always blame regulations when the economics say things you don't want them to. It's flatly impossible to isolate the two: the market is shaped by regulations and visa versa. 1. https://en.wikipedia.org/wiki/Railway_Mania https://en.wikipedia.org/wiki/Railway_Mania
- relyio 9y ago
  No, that's not the argument made. It is a little bit more subtle than that. OP says that the roots of the first ever recorded bubble were in inept regulatory action. He adds that it was financial instruments underlaid by bulb prices that were inflated, not the actual bulb prices. The subtext here is that the analogy used by the article is not fitting since they are talking about bitcoin's price, not some financial instruments that takes them as input. Nowhere does OP says that a Bitcoin bubble is impossible. He merely explains that it is interventionism in free markets that has historically been the root cause of many bubbles. Government intervention for which government intervention is required to correct the nefarious effect, in return begging for even more intervention, and so on... ad nauseam. There's a big difference between this thesis and the one you comment. >Economic systems are a combination of markets and regulatory frameworks That's a useless definition of an economic system because it grounds itself into a narrow category excluding others when instead it you want it therefore excluding others instead of being as general as possible. A better one would be simply: "an economic system is a configuration in which the five factors of production interact". > you can't always blame regulations when the economics say things you don't want them to. Again, that's not what OP says. He never said that free markets are precluded from doing harm. Only that government intervention is even more inefficient and harmful but in ways which are far greater to anticipate until it goes boom. Why? Because artificially changing the parameters of a complex systems creates tons of side effects, including hidden incentive feedback loops which prompts some actors to adopt behavior that are locally optimal but takes us into directions we do not want. __
  - 9y ago
deleted 9y ago
[deleted]
justin66 9y ago
> Tulip mania was caused by the government changing futures contracts into options. The mania happened in these financial instruments, not actual tulip bulb prices. This is obviously wrong: even accepting the premise of Thompson's paper, the popping of the bubble is blamed on what you've referred to but the mania (the inflated asset prices) existed for a very long time prior to that. In retrospect, the method of popping the bubble is really the least interesting part of that whole phenomenon (it's a given that those prices were going to crash) although I'm sure the people who experienced it did not feel that way.
- stretchwithme 9y ago
  It doesn't seem to have gone on for very long to me: http://www.thebubblebubble.com/wp-content/uploads/2012/05/Tulipomania.gif http://www.thebubblebubble.com/wp-content/uploads/2012/05/Tu...
  - justin66 9y ago
    Stipulating for the moment that that chart is a chart, the phenomenon you sited as causing the tulip mania would have had to travel backward in time at least a year in order to do it. Perhaps we should agree that that is not reasonable. (I agree with your more important point that tulip mania and bitcoin are quite different)
justin66 9y ago
> Many bubbles are caused by government actions. Our own housing bubble was fomented by numerous bad policies. If the "government action" in question is deregulation that allows the market to blow itself up, do you want to chalk that event up to market failure or government action?
- mamon 9y ago
  If by "dereguation" you mean creating government agencies like Freddie Mac and Fannie Mae, which sole purpose was dissorting mortgage market by allowing banks to offset risk from subprime loans, then yes, last crysis was caused by deregulation :) And of course road to hell is paved with good intentions: government was only trying to make houses more affordable to even the poorest Americans. And even without such special-purpose institutions government can cause market bubbles by nothing more than its "monetary policy" and artificially induced inflation.
  - justin66 9y ago
    > If by "dereguation" you mean creating government agencies like Freddie Mac and Fannie Mae I don't.
- addHocker 9y ago
  I always found it astounding, that all those extremists rather prefer to dwell in this nightmarish bureaucratic western democracies, while paradises are abundant. North Korea, if you fance the Communistic spectrum, somalia if you are a libertarian and plenty of religious outliers to live the life of ones dreams. And yet, here they are..

mads 9y ago

But it doesn't mean that the bubble is not there. Governments don't create bubbles. Human nature does.

deleted 9y ago
[deleted]
Synaesthesia 9y ago
If you’ve been in bitcoin long enough you’ve seen several boom/bust cycles, so it would hardly be surprising. And it’s auite unpredictable. Suppose the US enacted laws similar to what China just did, it could cause a crash. But I still thing they will always have some value.
runeks 9y ago
> Governments don't create bubbles. Human nature does. And yet, OP just provided evidence of a case where, previously, we assumed a specific asset bubble was caused by "human nature", but in fact it looks like it was created through the government inadvertently creating risk-free speculation in options contracts for this very asset.

runeks 9y ago

Clickable link: https://en.wikipedia.org/wiki/Tulip_mania#Legal_changes https://en.wikipedia.org/wiki/Tulip_mania#Legal_changes (for the copy/paste-challenged) By the way, this is a really interesting argument. I’m surprised it hasn’t be pointed out before. Paper link: https://link.springer.com/article/10.1007%2Fs11127-006-9074-4 https://link.springer.com/article/10.1007%2Fs11127-006-9074-...

stretchwithme 9y ago
I fixed the link. I guess indenting it defeated the autolinking.

heisenbit 9y ago

The wikipedia article lists several competing and complementing explanations without elevating one as the one and only true one. In systems with strong feedback it is very hard to know what is cause, what is effect and what was just a coincident.

runeks 9y ago
Don't rely on Wikipedia to tell you what the true explanation is. From the linked section: > If the price rose above 100 guilders, the speculator would pocket the difference as profit. If the price remained low, the speculator could void the contract for only 3½ guilders. The Dutch government enabled risk-free speculation in tulip options contracts (formerly futures contracts). How could the price of such a contract not rise under these circumstances?
- dnautics 9y ago
  Sounds an awful more like the ways leverage (for wealthy speculators) is protected in our society. That has implications bforbthe stock market more than it does Bitcoin. Do we know about how much Bitcoin trading is done on leverage? I suspect it's relatively low (as securities go).
  - runeks 9y ago
    I don’t see any parallel in our currency financial system. If you know an investment where losses are limited to, at most, 3.5% and potential profit is unlimited, please let me know.

xvedejas 9y ago

So maybe bubbles are created by quick changes in the financial landscape, whether due to government or technology?

autokad 9y ago

you are correct that many (if not most) bubbles and crisis are created by governments, but in some of these cases this involves participants trying to avoid the government action. in these cases, bitcoin could be an example of that

touchofevil 9y ago

The Bitcoin bubble could still be the result of government action even though Bitcoin is not a creature of government. For example, if China is preventing its citizens from moving money offshore that action could result in a Bitcoin bubble as Chinese citizens use Bitcoin to work around government restrictions. Now that China is clamping down, the bubble (if there is one) could pop. The same thing has happened with Chinese buyers driving up the price of random short domain names. https://qz.com/581248/chinas-latest-investment-craze-is-short-domain-names/ https://qz.com/581248/chinas-latest-investment-craze-is-shor...

pfraze 9y ago

Your argument boils down to: Tulip Mania was caused by the govt, BtC isn't a govt system, therefore BtC can't be a bubble. Tulip Mania gets referenced because it's ridiculous on its face, but what about the Dot-com Bubble or Railway Mania? [1] Economic systems are a combination of markets and regulatory frameworks, and you can't always blame regulations when the economics say things you don't want them to. It's flatly impossible to isolate the two: the market is shaped by regulations and visa versa. 1. https://en.wikipedia.org/wiki/Railway_Mania https://en.wikipedia.org/wiki/Railway_Mania

relyio 9y ago
No, that's not the argument made. It is a little bit more subtle than that. OP says that the roots of the first ever recorded bubble were in inept regulatory action. He adds that it was financial instruments underlaid by bulb prices that were inflated, not the actual bulb prices. The subtext here is that the analogy used by the article is not fitting since they are talking about bitcoin's price, not some financial instruments that takes them as input. Nowhere does OP says that a Bitcoin bubble is impossible. He merely explains that it is interventionism in free markets that has historically been the root cause of many bubbles. Government intervention for which government intervention is required to correct the nefarious effect, in return begging for even more intervention, and so on... ad nauseam. There's a big difference between this thesis and the one you comment. >Economic systems are a combination of markets and regulatory frameworks That's a useless definition of an economic system because it grounds itself into a narrow category excluding others when instead it you want it therefore excluding others instead of being as general as possible. A better one would be simply: "an economic system is a configuration in which the five factors of production interact". > you can't always blame regulations when the economics say things you don't want them to. Again, that's not what OP says. He never said that free markets are precluded from doing harm. Only that government intervention is even more inefficient and harmful but in ways which are far greater to anticipate until it goes boom. Why? Because artificially changing the parameters of a complex systems creates tons of side effects, including hidden incentive feedback loops which prompts some actors to adopt behavior that are locally optimal but takes us into directions we do not want. __
- 9y ago

deleted 9y ago

[deleted]

justin66 9y ago

> Tulip mania was caused by the government changing futures contracts into options. The mania happened in these financial instruments, not actual tulip bulb prices. This is obviously wrong: even accepting the premise of Thompson's paper, the popping of the bubble is blamed on what you've referred to but the mania (the inflated asset prices) existed for a very long time prior to that. In retrospect, the method of popping the bubble is really the least interesting part of that whole phenomenon (it's a given that those prices were going to crash) although I'm sure the people who experienced it did not feel that way.

stretchwithme 9y ago
It doesn't seem to have gone on for very long to me: http://www.thebubblebubble.com/wp-content/uploads/2012/05/Tulipomania.gif http://www.thebubblebubble.com/wp-content/uploads/2012/05/Tu...
- justin66 9y ago
  Stipulating for the moment that that chart is a chart, the phenomenon you sited as causing the tulip mania would have had to travel backward in time at least a year in order to do it. Perhaps we should agree that that is not reasonable. (I agree with your more important point that tulip mania and bitcoin are quite different)

justin66 9y ago

> Many bubbles are caused by government actions. Our own housing bubble was fomented by numerous bad policies. If the "government action" in question is deregulation that allows the market to blow itself up, do you want to chalk that event up to market failure or government action?

mamon 9y ago
If by "dereguation" you mean creating government agencies like Freddie Mac and Fannie Mae, which sole purpose was dissorting mortgage market by allowing banks to offset risk from subprime loans, then yes, last crysis was caused by deregulation :) And of course road to hell is paved with good intentions: government was only trying to make houses more affordable to even the poorest Americans. And even without such special-purpose institutions government can cause market bubbles by nothing more than its "monetary policy" and artificially induced inflation.
- justin66 9y ago
  > If by "dereguation" you mean creating government agencies like Freddie Mac and Fannie Mae I don't.
addHocker 9y ago
I always found it astounding, that all those extremists rather prefer to dwell in this nightmarish bureaucratic western democracies, while paradises are abundant. North Korea, if you fance the Communistic spectrum, somalia if you are a libertarian and plenty of religious outliers to live the life of ones dreams. And yet, here they are..