And to think I saw it on Mulberry Street

This time of year, mulberry trees turn sidewalks into purple jelly, and birds  commit acts of purple outrage on cars, houses and hats. And it’s also the time of the market season for people to look for bubbles. What do the two have in common? Quite a lot, actually.

Mulberries on the tree.
Mulberries on the tree.

At least some of the mulberries you see are not native American white mulberries (morus alba), but an imported Asian mulberry, morus multicaulis. And we have morus multicaulis because of speculation in the silk trade in the early part of the 19th century.

Americans had always wanted be silk manufacturers, and to make silk, you need mulberries, because that’s what silkworms eat. The American mulberry was OK for feeding silkworms, but in 1828, Congress decided to encourage the silk trade further by publishing a manual extolling the virtues of morus multicaulis. Apparently, the imported version grew lower to the ground and had bigger, tastier leaves than the native species. Some state legislatures even paid farmers to grow mulberries.

Mulberry mania took off swiftly, according to this wonderful article at Connecticuthistory.org:

“By 1830, John D’Homergue and Peter Duponceau reported to the U.S. Department of Agriculture that “suddenly and by a simultaneous and spontaneous impulse the people of the United States have directed their attention to this source of national riches…Everywhere, from north to south, mulberry trees have been planted and silkworms raised.” The Niles Weekly Register, based in Baltimore and considered by historians to be one of the nation’s most influential newspapers of its time, reported that at one agricultural fair more than 70,000 mulberry trees had been entered for various prizes.”

Prices for mulberry cuttings and trees rose sharply the next few years. Seedlings of morus multicaulis sold for $4 per 100 trees in 1834, $10 per 100 in 1835, and $30 per 100 in 1836. By 1839, prices peaked at $500 per 100 trees.

Japanese ladies making silk prints.
Japanese ladies making silk prints.

What speculators hadn’t realized, of course, was that silkworms eat prodigious amounts of mulberry leaves to make silk, and the mighty morus multicaulis couldn’t make enough leaves at a low enough cost to make silk manufacturing worthwhile, even if you used a whip. Farmers also learned that making silk was a wearisome, labor-intensive process that was rarely worthwhile at U.S. wages.

A gargantuan national depression and two severe winters killed the demand for silk and many of the mulberry trees. Disgusted farmers burned their trees or used them for feed, and multicaulis mania slipped into history.

Manias are, and have been, a part of the financial world for time out of mind. Soaring prices are one hallmark of a mania. But true manias are marked by soaring prices that are disconnected from the real value of the item. Multi-million dollar valuations for companies with no earnings in the 1990s was what distinguished the technology bubble from a run-of-the-mill bull market. Million-dollar three-bedroom ranch houses, purchased with no money down, distinguished the housing bubble of 2004-2006.

Pointing a finger at the Dow’s rise since 2009 and calling “bubble!” does a disservice to the term. Bubbles are an extraordinary phenomenon that involves an irrational break between value and price. Soda isn’t a bubble because it cost a nickle in the Depression and costs $1.25 now.

A gypsy moth.
A gypsy moth.

Stock prices in 2009, as well as corporate earnings, were in an extraordinary depression. They’re high now, but probably aren’t really in bubble territory, especially given that earnings are at near-record highs. Other areas — pre-IPO technology companies, for example, and Chinese stocks generally — could well be in a bubble. But U.S. stocks are where they usually are at the later stages of a bull market: Stretched, but not insane.

(As a footnote to the mulberry saga: Étienne Léopold Trouvelot, an amateur etymologist, discovered what he thought were an improved species of silkworms in Europe and brought them to his home in Medford, Mass., in 1869.  A few escaped. We know them now as gypsy moths.)

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