Monday, April 09, 2007

A question of value

How does a particular item become economically valuable? And how is that decided? The value of some precious commodities is obvious, such as food, water, land, materials for shelter and clothing—basic needs. But how did gold become more valuable than silver? Diamonds more valuable than rubies?

Some herbs, spices, tea, salt have been highly valued items in the past. And so have tulips. According to an article on Wikipedia, in the late 1500s, tulip bulbs were used as currency and bought and sold like stocks in the Dutch economy. At the time, tulips were rare, a flower that bloomed earlier than others, and the most prized were those with color-variegated petals (actually due to disease that eventually killed the bulbs). Thieves robbed warehouses and dug up private gardens going after the bulbs. The financial speculation grew to a frenzy in the early 1600s, but finally crashed, and many businesses and financiers were wiped out.

Charles Mackay, a British journalist, wrote a book in the 1830s about this period of history, "tulipomania". (You can read his book online). Scholars today disagree about Mackay’s book, and about the true impact of tulip mania, and what actually caused it. Nevertheless, "tulip mania" is still used as a metaphor for a bubble economy.

So, what are the tulips in your yard worth? Perhaps you’re sitting on a fortune…

~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~

Like the Great Tulip Mania in Holland in the 1600's and the mania of early 2000, markets have repeatedly disconnected from reality.
--Tony Crescenzi

Every possession is endeared by novelty; every gratification is exaggerated by desire. It is difficult not to estimate what is lately gained above its real value; it is impossible not to annex greater happiness to that condition from which we are unwillingly excluded than nature has qualified us to obtain.
--Samuel Johnson

Too many people overvalue what they are not and undervalue what they are.
-- Malcolm S. Forbes

No comments: