Tulip Mania – The Story of One of History’s Worst Financial Bubbles

The tulip mania was a period in the Dutch Golden Age during which contract prices for tulips reached extraordinarily high levels and then dramatically collapsed. The term “Tulipmania” is often used metaphorically to refer to any giant economic bubble. The mania began in 1634 and lasted until early February 1637. It is considered one of the first recorded financial bubbles in modern times.

Setting the Stage For the Tulip Bubble

It’s hard to imagine now, but there was once when people went crazy over tulips. Prices for the flowers skyrocketed, and speculators began to invest in them, leading to one of history’s worst financial bubbles. What caused this mania? Let’s take a closer look. To be clear, “Tulipmania” wasn’t as crazed and irrational as it sounds. The Dutch, who were at the center of the action, were efficient people. They didn’t get swept up in emotion as we might today. Instead, they saw an opportunity and took advantage of it. Unfortunately, this opportunity would soon come back to bite them.

What caused tulip prices to skyrocket in the first place? Tulips were rare and exotic. So travelers from Europe visited Constantinople to see the emperor’s court and tulips; they shipped them back to France.

They returned home to Amsterdam, the trade capital for the continent. In 1602, the stock exchange opened, bringing more opportunities for investors to increase and diversify their wealth with exotic products. Those who could invest in valuable products often bought paintings, so tulip bulbs would be considered high worth. Naturally, those already well-off had the most gain.

The Dutch were known for their love of flowers and horticulture. There was a saying that “to be Dutch is to be at home among flowers.” About 50% of the world’s trade in floral products and 24% of the world’s horticulture products come from the Dutch. Tulips were a hit.

The Price of Tulip Blooms Rises

So when they first arrived in the Netherlands, people were fascinated by them. However, they were seen as a status symbol, and only the wealthy could afford to own them. Tulips were also quite popular since you never knew what colors you would get once the tulips bloomed. For instance, Tulips could come out in rich, solid colors or striped and speckled hues; the surprise element helped increase the flowers’ value.

Many wealthy merchants, artisans, and doctors began to invest in tulips since they constantly changed. This gave the Dutch investors a unique product that they could obsess over. Despite the winter season, the price of Tulips skyrocketed in 1636 due to the extremely high demand. In turn, this speculation created quite an expensive futures market.

Due to the nature of tulips, they could not be stored like other goods; instead, they had to be bought and sold immediately. At the same time, if Tulips were grown from seed, they could potentially take 12 years before flowering, but bulbs themselves could flower the very next year. This gave rise to “broken bulbs,” Tulips with a multi-colored pattern rather than a single solid color. These bulbs were rare, and instances like this led to the high market price. Professional traders also joined the mix, driving up prices even further.

Not all Tulips could demand high prices from collectors; however, that still didn’t stop the rarest Tulips from costing around 5,000 guilders or the price of a lovely home. At the height of Tulipmania, some bulbs were selling for as high as 100 times their original value. The speculation was so rampant that people were even buying bulbs on credit, betting that they would be able to sell them for a profit in the future. This “mania” wasn’t out of the ordinary and ubiquitous behavior, especially in modern stock exchanges.

By 1637, the speculative bubble had peaked, and a single bulb could sell for more than ten times the annual income of a skilled worker. That’s not to say that any worker could afford to get into the Tulip trade. Generally, merchants or skilled middle-class workers were the only ones who could afford to speculate. At this time, a skilled craftsman made approximately 300 guilders a year. This speculation and the sale of future Tulip bulbs often remained limited to neighbors, colleagues, merchants, bakers, and doctors-meaning sellers mainly sold to those they knew. In turn, the activity related to selling Tulips remained secretive and kept to inns and taverns.

The Crash of the Dutch Tulip Market

Unfortunately, all bubbles must end, and Tulipmania was no different. In early 1637, before Spring, the Dutch tulip market collapsed. It is still debated what caused this market crash; however, many believe it was due to fashion changes. In addition, economists believe investors started to worry about soaring prices and began selling their bulbs. Finally, scholars speculate that the crash began when traders realized how overinflated the market had become. 

It’s possible that people were growing tired of the fad and wanted something new. Additionally, there was also a severe economic downturn in the Netherlands which could have caused people to sell their bulbs to pay off debts or make ends meet. Others reference a specific point where auctioneers failed to sell a particular bulb at an auction in Haarlem on February 3rd, 1637. By that time, circumstances had already convinced buyers that Tulips were overpriced. This caused the market to crash, and prices fell sharply.

Anne Goldgar, the author of Tulipmania: Money, Honor, and Knowledge in the Golden Age, maintains that even those massively wealthy Dutchmen who invested in the Tulip business didn’t seem all that affected by the sudden downturn in price. She could find no evidence of anyone losing their fortunes, and few people went bankrupt because buyers never paid out the promised funds.

If anyone was genuinely affected by the sudden crash, Tulip growers never received the funds buyers promised.

How Did the Myth Persist?

While it’s easy to see how “Tulipmania” could have started, it’s harder to understand how the myth of its severity persisted. In the 19th century, several pamphlets were published that described the event in extreme detail. One such brochure, by Charles Mackay, claimed that people committed suicide because of the crash and that tulips ruined the Dutch economy. Mackay’s work was so convincing that it was even used as evidence in 19th-century economic debates. Even popular movies like Wall Street: Money Never Sleeps reference the event as one of the most famous financial bubbles.

While it’s easy to see how Tulipmania could have persisted, it’s important to remember that the event was not as significant as many people believe. While some people lost money, the crash did not ruin the Dutch economy. However, the event is a cautionary tale in economics about the dangers of speculative investing, and it’s not an accurate portrayal of the marketplace.

Alan Behrens

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