Stories of speculative bubbles and the ensuing crashes are fascinating. When reading through, for example, Extraordinary popular delusions and the madness of crowds by Charles Mackay (1980) one is left with the overwhelming thought, ‘how could rational people behave so?’ Cautionary tales based on the Dutch tulip mania are well known, yet bubbles continue to occur. Each generation seems to believe that ‘this time it will be different’. Railways, electricity and the Internet are all great technological advances that spawned great speculative excess.
The recurrence of speculative excess in widely differing environments suggests that it is, at base, a product of human nature. As such, Australia has had its fair share of speculative excess. This paper will examine three occasions when Australia has experienced asset-price bubbles: the land bubble in Melbourne in the 1880s; the Poseidon nickel bubble of 1969–1970; and the stock and property market bubbles of the late 1980s. These episodes cover property markets, mining stocks and stocks more generally; as such they provide a diversity of experience that a study of episodes in the stock market alone would miss. Mining stocks, for example, behave very differently to those of stocks more generally because of the inherent riskiness of the activity. The property market is different again.
Nonetheless, the choice of these episodes anticipates an important discussion: What exactly is a bubble and why do these episodes qualify? While we can all point to episodes that look like a bubble, actually tying down a definition, or categorising a given episode is much harder. I turn to that question now to provide a justification for why the particular episodes listed above have been chosen.