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Part I
rhetorical device to put across an argument. The story is now on such a mythological level that anyone feels the ability to embellish it, however falsely, to make a point. For what reason is the tulipmania generally invoked? The argument is always that the existence of tulipmania proves that markets are crazy. A curious disturbance in a particular modern market can then be attributed to crazy behavior, so perhaps the market needs to be more severely regulated. Thus, these early episodes are the dream events for those who want to control the flow of capital. The Famous Bubbles History is a rhetorical weapon to be used in influencing modern policy outcomes. In particular, the invocation of bubbles is one such use of history. We now turn to the histories of the early bubbles to track down what they actually imply about the behavior of the private capital markets. I aim here to supply market fundamental explanations for the three most famous bubbles: the Dutch tulipmania (1634–1637), the Mississippi Bubble (1719–1720), and the closely connected South Sea Bubble (1720). Though several authors have proposed market fundamental explanations for the well-documented Mississippi and South Sea Bubbles, these episodes are still treated in the modern view as spectacular outbursts of crowd irrationality. This interpretation is attributable to the influ-
