Bubble, according to Jason Zweig’s new book, The Devil’s Financial Dictionary, is defined as
A mania; a rise in asset prices that seems irresistible at the time and irrational in retrospect; a bull market blown full of hot air until it reaches the bursting point.
The term is commonly believed to have originated around 1719–1720, when shares in the Mississippi Co. in France, the South Sea Co. in Britain, and the Dutch East India Company in the Netherlands rose approximately tenfold in a matter of months and then collapsed.
But the word is older. To bubble, meaning to cheat or trick, was a common term in England decades before the Mississippi Co. mania. “Let them be bubbl’d by them that know no better,” wrote Daniel Defoe, in his pamphlet “The Free-Holders Plea against Stock-Jobbing Elections of Parliament Men” (1701).
As a noun, “bubble” was also a synonym for someone who had been robbed or defrauded. As the rake Dorimant advises in George Etherege’s Restoration comedy, The Man of Mode (1676): “Lose it all like a frank gamester on the square, ’twill then be time enough to turn rook [swindler] and cheat it up again on a good substantial bubble.”
The Dutch were also familiar with the word “bubble” (which they presumably borrowed from the English). It was closely related to windhandel, or “dealing in wind,” the Dutch expression for trading in stocks that weren’t in the speculator’s possession, as SHORT-sellers may still do today. (Windhandel also referred to trading in derivatives such as options and futures.)