Bubbles are not a modern invention. For roughly four centuries, markets have periodically lifted the prices of particular assets far beyond what their underlying value could justify, before collapsing just as dramatically. The assets have ranged from flower bulbs and trading-company shares to railways, land, technology stocks and family homes.
Looking at these episodes side by side is illuminating. The details differ, often enormously, but the shape repeats: a genuine new opportunity, a boom fuelled by credit and enthusiasm, a phase of euphoria, a trigger and a painful collapse. The same mistakes recur across centuries, made by people who were often well informed and well intentioned.
This article takes a brief tour through some of the best-known bubbles, from seventeenth-century Holland to the early twenty-first century, including two Australian examples, and draws out the lessons they share. It is part of GoCore’s series on bubbles; the stages themselves are described in The anatomy of a bubble.
Tulip mania: the Dutch Republic, 1630s
The episode usually cited as the first great bubble took place in the Dutch Republic in the 1630s. Tulips, introduced to Europe from the Ottoman Empire, had become prized luxury goods, especially rare varieties with striking patterned petals (later found to be caused by a virus). Prices for bulbs of the most sought-after varieties rose to extraordinary levels, and trading spread to bulbs that were still in the ground, through contracts for future delivery.
Prices collapsed in early 1637, leaving many contracts unpaid.
Tulip mania became famous partly through Charles Mackay’s 1841 book Extraordinary Popular Delusions and the Madness of Crowds. Later historians, including Anne Goldgar, have argued that some of the most colourful stories were exaggerated, and that the economic damage was more limited than legend suggests. Even so, the episode remains a vivid symbol of how prices can become detached from any reasonable measure of value.
The Mississippi and South Sea bubbles, 1719–1720
Two linked bubbles erupted in France and Britain within months of each other.
In France, the Scottish financier John Law established a bank and the Mississippi Company, which gained rights to trade with French territories in North America and took over much of the French government’s debt. Shares soared in 1719 as the company’s ambitions grew and new money was printed to support it. In 1720 confidence collapsed, and so did the shares and Law’s system.
In Britain, the South Sea Company, granted trading rights in South America, also took over government debt in exchange for its shares. Its share price rose several-fold in the first half of 1720, accompanied by a wave of other company flotations, some of them dubious. Parliament passed the so-called Bubble Act during the boom, restricting the formation of new joint-stock companies; it stayed in force for about a century. By the end of 1720, the South Sea share price had collapsed. Many investors, including prominent figures, suffered heavy losses; Isaac Newton is widely reported to have been among them.
The British Railway Mania, 1840s
The railways offer a classic example of a genuine technological revolution financed at prices that could never be justified.
After early railways proved successful in the 1830s, investment poured into new railway companies in the mid-1840s, encouraged by low interest rates and the evident promise of the technology. Parliament approved large numbers of new lines. Shares could often be bought for a small deposit, with the balance payable later. When interest rates rose and companies called for the unpaid capital, many investors were forced to sell, and share prices collapsed.
Yet much of the network built during the mania went on serving Britain for generations. The technology was real; the returns for many investors were not.
The Melbourne land boom, 1880s
Australia’s own great nineteenth-century bubble centred on Melbourne, then one of the richest cities in the world following the gold rushes. During the 1880s, property prices and land speculation surged, financed by a proliferation of banks, building societies and land companies, many of them heavily reliant on borrowed money, including from British investors.
The boom collapsed at the end of the decade. Land prices fell, many land companies and building societies failed, and in 1893 a banking crisis saw a large number of banks suspend payments. The depression of the 1890s was severe, especially in Victoria.
The Roaring Twenties and the crash of 1929
The 1920s in the United States combined new technologies (electricity, cars, radio, mass production) with rising prosperity and a widespread belief in a new era. Share prices rose strongly, especially in the later years of the decade, supported by heavy buying on margin, with investors borrowing much of the purchase price.
In October 1929, share prices fell sharply over several days. Margin calls forced further selling. By 1932, the main US share index had lost close to 90% of its 1929 value. The crash was followed by the Great Depression, although economists continue to debate how much the crash itself caused the depression and how much was due to later policy mistakes and banking failures.
The Poseidon boom, 1969–1970
Australia’s most famous share mania involved Poseidon NL, a small mining company that announced a nickel discovery in Western Australia in 1969, at a time of high nickel prices. Its shares rose from under a dollar to more than $200 within months, and speculative fever spread to many other mining exploration companies, some with little more than a lease and a story.
When the realities of the discovery, and of the wider market, became clear, Poseidon’s shares and many other speculative mining shares collapsed. The episode left a lasting mark on Australian investors and contributed to changes in the regulation of share markets.
The 1980s corporate boom and the 1987 crash
The 1980s brought financial deregulation in many countries, including Australia, where the dollar was floated in 1983 and foreign banks were admitted later in the decade. Credit became much easier to obtain. Share prices rose strongly, and a number of entrepreneurs built large, heavily indebted corporate groups through acquisitions.
On 19 October 1987, US share prices fell by more than 20% in a single day, and markets around the world followed. The Australian share market fell by about a quarter on the following day, local time. In the years after the crash, several prominent and highly leveraged Australian corporate groups collapsed, commercial property prices fell, and some financial institutions suffered heavy losses. Australia entered a recession in the early 1990s.
Japan, late 1980s
In the late 1980s, Japanese share and property prices rose to extraordinary levels. Japan’s manufacturing success and management methods were widely admired, and many believed its economic model would dominate the world. Low interest rates, rapid credit growth and bank lending secured against land and shares fuelled the boom. At its height, it was often claimed that the land under the Imperial Palace in Tokyo was worth more than all the real estate in California.
The main Japanese share index peaked at the end of 1989 at nearly 39,000. Over the following years it lost around four-fifths of its value, and land prices fell for many years. Japan’s banks were burdened with bad loans, and the economy endured a long period of weak growth often called the “lost decade”. The share index did not surpass its 1989 peak until 2024.
The Asian financial crisis, 1997–1998
Several fast-growing East and South-East Asian economies attracted large foreign capital inflows in the decade before 1997. Many kept their currencies linked to the US dollar, and banks and businesses borrowed heavily in foreign currencies to fund property and share market booms.
In July 1997, Thailand abandoned its currency peg, and the crisis spread across the region. Currencies collapsed, foreign-currency debts ballooned, asset prices fell and several economies suffered deep recessions. The article Bubbles, strong currencies and capital flows explains the dynamics.
The dot-com bubble, late 1990s
The spread of the internet in the 1990s was a genuine revolution. Investors, convinced that a “new economy” had arrived, poured money into technology and internet companies, many with little or no revenue. Valuations were often based on website visitors or growth rates rather than profits. New companies floated on share markets at soaring prices.
The technology-heavy NASDAQ index peaked in March 2000, after more than tripling from its late-1998 level, and lost close to four-fifths of its value by late 2002. Many internet companies failed. Yet the internet went on to transform the economy, and some companies that survived became among the largest in the world.
The US housing bubble and the global financial crisis, 2000s
In the early 2000s, low interest rates, loosening lending standards and new financial products fuelled a housing boom in the United States and several other countries. Loans were made with small deposits, low introductory rates and little verification of borrowers’ incomes. Mortgages were bundled into complex securities and sold around the world.
US house prices peaked around 2006. As prices fell and interest rates on many loans reset higher, defaults rose. Losses spread through the financial system, and in September 2008 the collapse of the investment bank Lehman Brothers triggered a global financial panic. The result was the deepest global recession in decades. The article After the peak looks at how such busts unfold.
What the bubbles share
Across four centuries, the episodes share striking features.
| Feature | Examples |
|---|---|
| A genuine new element | Railways, electricity, the internet, Japan’s manufacturing success, gold-rush wealth |
| Rapid credit growth or leverage | Partly paid railway shares, 1920s margin buying, Japanese land-backed loans, US subprime mortgages |
| New participants | Ordinary savers buying railway shares, first-time share investors in the 1920s and 1990s |
| A “new era” story | A new economy, a new economic model, a permanent rise in land values |
| New companies and promoters | 1720 flotations, mining explorers in 1969, internet start-ups |
| Collapse followed by economic damage | Depressions after 1893 and 1929, Japan’s lost decade, the global financial crisis |
The details of each bubble are unique. The pattern is not.
Lessons from history
Real innovations can still produce terrible investments. Railways and the internet changed the world, and many investors in both lost heavily. The article “This time is different” explores why.
Credit determines the damage. Bubbles financed with debt, from the Melbourne land boom to the US housing bubble, did far more economic harm than those financed mainly with savings.
Memories fade. Bubbles in a particular market tend to recur once a generation has passed since the last bust.
Busts hurt people who never speculated. Depressions and recessions after major busts affected workers, businesses and households far from the original market.
Recovery can take a very long time. Japan’s share market took more than three decades to regain its peak.
Nobody is immune. Experienced investors, respected institutions and brilliant individuals have been caught in bubbles again and again. The article The psychology of bubbles explains why.
What this means today
History does not predict which markets will form bubbles in future, or when they will burst. But it does provide a library of patterns. When a market shows a genuine new element, a compelling new-era story, rapid credit growth, waves of new participants and valuations far above historical norms, history suggests caution. The checklist in Warning signs of a bubble turns these patterns into practical questions.
For business owners, the lessons are practical. Avoid building fixed commitments on boom-time demand. Be wary of borrowing against inflated asset values. Keep reserves for the bust, when assets and talent become available at sensible prices. And remember that genuine innovation and sensible prices are two separate questions.
Questions to ask
- Which historical bubble does the current situation most resemble, and where does it differ?
- Is the new element genuine, and how much of its future value is already reflected in prices?
- How much credit is financing the boom?
- How long has it been since the last bust in this market?
- For your own business: what did the last major downturn in your industry teach, and have those lessons been remembered?
Bringing it together
From tulip bulbs in the 1630s to US housing in the 2000s, bubbles have recurred in different assets, countries and eras, yet with a consistent shape. Genuine innovations and real economic changes attract enthusiasm and credit, prices rise far beyond value, and the collapse brings losses that extend well beyond the speculators.
Studying this history does not make bubbles easy to predict. It does make them easier to recognise, and it offers clear lessons for investors and business owners alike: separate the reality of an innovation from the price paid for it, watch credit closely, keep reserves, and remember that the people caught in past bubbles were rarely less intelligent than we are.
Sources: an introductory chapter on asset bubbles written in the mid-2000s, Charles Kindleberger’s Manias, Panics, and Crashes, and widely documented financial history. Historical details are summarised and some, particularly for older episodes, are debated by historians. This article is general information, not financial or investment advice.
