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The Real Story Behind the 17th-Century ‘Tulip Mania’ Financial Crash


In 1636, according to an 1841 account by Scottish author Charles MacKay, the entirety of Dutch society went crazy over exotic tulips. As Mackay wrote in his wildly popular, Memoirs of Extraordinary Popular Delusions and the Madness of Crowds, as prices rose, people got swept up in a speculative fever, spending a year’s salary on rare bulbs in hopes of reselling them for a profit.

Mackay dubbed the phenomenon “The Tulipomania.”

“A golden bait hung temptingly out before the people, and one after the other, they rushed to the tulip-marts, like flies around a honey-pot,” wrote Mackay. “Nobles, citizens, farmers, mechanics, sea-men, footmen, maid-servants, even chimney-sweeps and old clothes-women, dabbled in tulips.”

When the tulip bubble suddenly burst in 1637, Mackay claimed that it wreaked havoc on the Dutch economy.

“Many who, for a brief season, had emerged from the humbler walks of life, were cast back into their original obscurity,” wrote Mackay. “Substantial merchants were reduced almost to beggary, and many a representative of a noble line saw the fortunes of his house ruined beyond redemption.”

But according to historian Anne Goldgar, Mackay’s tales of huge fortunes lost and distraught people drowning themselves in canals are more fiction than fact. Goldgar, a professor of early modern history at King’s College London and author of Tulipmania: Money, Honor and Knowledge in the Dutch Golden Age, understands why Mackay’s myth-making has endured.

“It’s a great story and the reason why it’s a great story is that it makes people look stupid,” says Goldgar, who laments that even a serious economist like John Kenneth Galbraith parroted Mackay’s account in A Short History of Financial Euphoria. “But the idea that tulip mania caused a big depression is completely untrue. As far as I can see, it caused no real effect on the economy whatsoever.”

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The problem, says Goldgar, is the source material that Mackay used. In 17th-century Holland, there was a rich tradition of satirical poetry and song that poked fun at what Dutch society deemed to be moral failures. Out of that tradition came entertaining pamphlets and poems that targeted the alleged folly of the tulip buyers, whose crime was thinking that trading in tulips would be their ticket into Dutch high society.

“My problem with Mackay and later writers who have relied on him—which is virtually everybody—is that he is taking a bunch of materials that are commentary and treating them as if they’re factual,” says Goldgar.

To get the real scoop on tulip mania, Goldgar went to the source. She spent years scouring the archives of Dutch cities like Amsterdam, Alkmaar, Enkhuizen and especially Haarlem, the center of the tulip trade. She painstakingly collected 17th-century manuscript data from public notaries, small claims courts, wills and more. And what Goldgar found wasn’t an irrational and widespread tulip craze, but a relatively small and short-lived market for an exotic luxury.

In the mid-1600s, the Dutch enjoyed a period of unmatched wealth and prosperity. Newly independent from Spain, Dutch merchants grew rich on trade through the Dutch East India Company. With money to spend, art and exotica became fashionable collectors items. That’s how the Dutch became fascinated with rare “broken” tulips, bulbs that produced striped and speckled flowers.

First these prized tulips were bought as showy display pieces, but it didn’t take long for tulip trading to become a market of its own.

“I found six examples of companies that were set up to sell tulips,” says Goldgar, “so people were quickly jumping on the bandwagon to take advantage of something which was a desired commodity.”

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Tulip prices spiked from December 1636 to February 1637 with some of the most prized bulbs, like the coveted Switzer, experiencing a 12-fold price jump. The most expensive tulip receipts that Goldgar found were for 5,000 guilders, the going rate for a nice house in 1637. But those exorbitant prices were outliers. She only found 37 people who paid more than 300 guilders for a tulip bulb, the equivalent of what a skilled craftsman earned in a year.

But even if a form of tulip mania did strike Holland in 1636, did it reach every rung of society, from landed gentry to chimney-sweeps? Goldgar says no. Most of the buyers were the sort you would expect to be speculating in luxury goods—people who could afford it. They were successful merchants and artisans, not chambermaids and peasants.

“I only identified about 350 people who were involved in the trade, although I’m sure that number is on the low side because I didn't look at every town,” says Goldgar. “Those people were very often connected with each other in various ways, through a profession, family or religion.”

What really surprised Goldgar, given Mackay’s tales of financial ruin, was that she wasn’t able to find a single case of an individual who went bankrupt after the tulip market crashed. Even the Dutch painter Jan van Goyen, who allegedly lost everything in the tulip crash, appears to have been done in by land speculation. The real economic fallout, in Goldgar’s assessment, was far more contained and manageable.

“The people who stood to lose the most money in the tulip market were wealthy enough that losing 1,000 guilders wasn’t going to cause them great problems,” says Goldgar. “It’s distressing and annoying, but it didn’t have any real effect on production.”

While tulip mania and the ensuing crash didn’t flatline the Dutch economy as Mackay asserted, there was still some collateral damage. From court records, Goldgar found evidence of reputations lost and relationships broken when buyers who promised to pay 100 or 1,000 guilders for a tulip refused to pay up. Goldgar says that those defaults caused a certain level of “cultural shock” in an economy based on trade and elaborate credit relationships.

Even if the tulip craze came to an abrupt and ignominious end, Goldgar disagrees with Galbraith and others who dismiss the entire episode as a case of irrational exuberance.

“Tulips were something that was fashionable, and people pay for fashion,” says Goldgar. “The apparent ridiculousness of it was played up at the time to make fun of the people who didn’t succeed.”


Tulip mania

Tulip mania (Dutch: tulpenmanie) was a period during the Dutch Golden Age when contract prices for some bulbs of the recently introduced and fashionable tulip reached extraordinarily high levels, and then dramatically collapsed in February 1637. [2] It is generally considered to have been the first recorded speculative bubble or asset bubble in history. [3] In many ways, the tulip mania was more of a hitherto unknown socio-economic phenomenon than a significant economic crisis. It had no critical influence on the prosperity of the Dutch Republic, which was one of the world's leading economic and financial powers in the 17th century, with the highest per capita income in the world from about 1600 to about 1720. [4] [5] [6] The term "tulip mania" is now often used metaphorically to refer to any large economic bubble when asset prices deviate from intrinsic values. [7] [8]

In Europe, formal futures markets appeared in the Dutch Republic during the 17th century. Among the most notable centered on the tulip market, at the height of tulip mania. [9] [10] At the peak of tulip mania, in February 1637, some single tulip bulbs sold for more than 10 times the annual income of a skilled artisan. Research is difficult because of the limited economic data from the 1630s, much of which come from biased and speculative sources. [11] [12] Some modern economists have proposed rational explanations, rather than a speculative mania, for the rise and fall in prices. For example, other flowers, such as the hyacinth, also had high initial prices at the time of their introduction, which then fell as the plants were propagated. The high asset prices may also have been driven by expectations of a parliamentary decree that contracts could be voided for a small cost, thus lowering the risk to buyers.

The 1637 event gained popular attention in 1841 with the publication of the book Extraordinary Popular Delusions and the Madness of Crowds, written by Scottish journalist Charles Mackay, who wrote that at one point 5 hectares (12 acres) of land were offered for a Semper Augustus bulb. [13] Mackay claimed that many investors were ruined by the fall in prices, and Dutch commerce suffered a severe shock. Although Mackay's book is a classic, his account is contested. Many modern scholars feel that the mania was not as extraordinary as Mackay described and argue that not enough price data is available to prove that a tulip bulb bubble actually occurred. [14] [15] [16] [17]


A Bold Claim

In the same vein, King’s College London history professor and author, Anne Goldgar, seeks to rewrite history and excise the mania from tulip mania. The tulip bulb episode bloomed relevant late last year with the surge in cryptocurrency prices, the release of the movie Tulip Fever , and an academic paper published in Financial History Review entitled “ Explaining the timing of tulipmania’s boom and bust: Historical context, sequestered capital, and market signals ” by James E. McClure and David Chandler Thomas, both from Ball State University. McClure and Thomas also created a short film entitled “ Betting on the Bulb .” Bloomberg even offered a podcast on the 17th-century mania.

“It wasn’t irrational to pay a high price for something that was generally considered valuable, and for which the next person might pay even more.”

Ms. Goldgar is the go-to person to throw a wet blanket on the notion that tulip trading was a city-wide frenzy in 1636 Amsterdam. In her 2007 book, Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age , Goldgar contends tulip trading was an extension of art collecting with profit not the motive but instead, "their concept of rarity, their thrill when they found 'something strange' was always paramount."

Last month King’s College published Goldgar’s article “ Tulip mania: the classic story of a Dutch financial bubble is mostly wrong ” allowing the mania-questioning author to claim, “ Tulip mania wasn’t irrational. Tulips were a newish luxury product in a country rapidly expanding its wealth and trade networks.”

Bulb prices increased, but, according to Goldgar, “It wasn’t irrational to pay a high price for something that was generally considered valuable, and for which the next person might pay even more.”


The Price Of Tulips Blooms

By 1636, demand for tulips took off. But it was still winter and the bulbs were trapped beneath the frozen ground. In the taverns of Amsterdam, traders exchanged promises to buy the tulip bulbs come spring, creating a highly expensive futures market.

But tulip mania really exploded in early 1637. Prices saw a thousandfold increase on Dec. 31, 1636, when Dutch traders sold one popular bulb for 125 guilders (old Dutch currency) a pound.

Just over a month later, on Feb. 3, 1637, that same tulip went for 1,500 guilders.

Jan Brueghel the Younger/Frans Hals Museum A circa 1640 satire of tulip mania by Jan Brueghel the Younger.

“Neighbors seemed to talk to neighbors colleagues with colleagues shopkeepers, booksellers, bakers, and doctors with their clients gives one the sense of a community gripped,” Goldgar wrote. “And enthralled by a sudden vision of its profitability.”

The price for tulips skyrocketed based on the belief that the flowers would fetch higher prices come spring. One pamphlet listed prices as high as 5,200 guilders for a specialty bulb – the price of a home — at a time when skilled craftsmen made around 300 guilders a year.

It would take that craftsman more than 17 years to afford one bulb.

Yet long before spring, the tulip bubble burst.


The Real Economic Madness Behind Tulip Fever

W ith a romance at its center, the title of the oft-delayed film Tulip Fever (and the novel on which the Alicia Vikander and Dane DeHaan movie is based) plays on the passionate sense of a “fever.” But the real historical context in which the story is set had to do with a fever less about love and more about money.

The fever in question, known as the Tulip Mania (sometimes styled as one word), struck in 17th century Holland, when the nation’s now-famous blooms caused a major financial boom and bust. As TIME once explained in a story about a different boom market, the flower itself was almost incidental to the story:

The tulip was then a comparatively new import from the Near East, and mutant specimens, with irregular stripes, were prized as rarities &mdash so prized that men would mortgage their villas and their fields. The tulips had little intrinsic value. Their worth as commodities was a function of pure, irrational desire, and their economic fate proved that nothing is more manipulable than desire. When the mania fell away, the flowers were as pretty as they had been before. It was just that now few people wanted them very much, whereas before they had been invested with a kind of fetishistic and obsessive “rarity.”


Commonplace Fun Facts

Long before the Dot-Com Bubble of the closing years of the 20th century, the world experienced another period of wild economic speculation. It took place in Europe in the 17th century. The commodity whose prices rose to astronomical and unsustainable prices wasn’t internet stock, real estate, oil, or gold it was the common tulip.

Ogier de Busbecq, the ambassador of the Holy Roman Emperor to Turkey, is credited with introducing the tulip to Europe in 1554. Within forty years tulip popularity grew to the point where they could be found throughout Central Europe. The flower’s heartiness permitted it to thrive in the colder climates of the United Provinces (now the Netherlands). With a little help and publicity from Dutch botanist Carolus Clusius, the Low Countries soon boasted impressive crops of the colorful flower.

The tulip was an exotic item. Unlike any other flower in Europe, its shape and vibrant colors made it a status symbol for anyone who wanted to flaunt his or her wealth.

Tulip growers learned to cultivate new and more-desirable colors. Each new color or pattern of colors captivated collectors. Soon, tulip growers were marketing their brand of tulip bulbs under names that were more coveted than vintage wines or thoroughbred horses.

Tulips can be grown from seeds or bulbs. When the tulip grows from a seed, it can take seven to twelve years before it begins to produce flowers. When grown from a bulb, however, the flower can appear much more quickly. With the tulip in bloom only for about a week during the months of April and May, tulip collectors spent most of the year trying to accumulate the perfect bulbs in anticipation of the next year’s exhibition of colors. Thus was born a commodity market as tulip traders signed futures contracts to buy or sell bulbs at the end of the growing season.

By 1634, the market for tulips had become international. Traders from as far away as France increased the demand for tulips well beyond their availability. By 1636, the top trading items in the Dutch economy were gin, herring, cheese, and tulips, in that order.

The year 1636 saw the tulip price escalate wildly. Speculators traded futures contracts without ever seeing the bulbs the contracts agreed to buy. In retrospect, the prices seem impossible to believe. In one case, an entire townhouse was offered in exchange for ten bulbs of the Semper Augustus variety of the flower. What is even more remarkable is that the offer was refused, because the bulbs were regarded as more valuable than the offered real estate.

To put the prices in context, a skilled laborer at that time might expect to earn between 150 and 350 florins per year. One florin at in 1635 had the purchasing power of $13 in today’s economy. The price of a ton of butter that year was 100 florins. That same year, 40 tulip bulbs sold for 100,000 florins — enough to buy 1,000 tons of butter or to pay a skilled worker 286-667 years of salary!

The price of tulips grew off of speculation. In other words, the contracts that were traded did not actually provide tulip bulbs to anyone they merely conveyed the right to buy or sell a certain number of bulbs for a stated amount. This would all work out well if they ultimately found customers willing to pay such prices for the bulbs. If they couldn’t, the prices would be proven to be unsustainable, and the market would collapse.

That’s exactly what happened. During the last month of the bubble — February 1637 — prices skyrocketed by 1,100%. That month a single bulb of Semper Augustus went for 10,000 florins. Only then did speculators begin to realize how difficult it would be to find anyone wealthy enough — or committed enough — to purchase the bulbs at anything close to market prices. In the span of one week, prices fell off by 25%. Within three months, prices had returned to what they were before the bubble began to form.

Countless fortunes were wiped out overnight. The government stepped in to help, allowing speculators to void their contracts by paying 10% of the contract’s value. By this point, the price of tulips had fallen so low, that many were unable to pay even the 10% amount.

In the years to come, many investors would make and lose fortunes in market bubbles. One cannot help but wonder if modern speculators wish they could trade places with their counterparts of 4 centuries ago. At least they had some pretty flowers to look at, instead of sheets of worthless paper entitled “Stock Certificate.”


Tulip Mania in the 17th century as the first financial bubble in history

When most people think about the Netherlands, they think about, among other things, the tulip. So, it may come as a surprise for many to find out that not only does the tulip not originate from there but was also responsible for the first financial bubble in history. In the years 1634-1637, the tulip market experienced a drastic increase in prices followed by a sudden crash in February 1637. Until recently, the story of “tulip mania” has been presented as a parable about human greed and market irrationality, brought up whenever there is trouble in the economy. But some have suggested that view might not be true and that our perception of this period in history is largely misconstrued, based upon later, exaggerated stories. This article explores the environment in which the bubble took place, what made the tulip ripe for such a bubble, and how these events are perceived today.

The golden age-a background for a bubble

The Dutch golden age was a period roughly spanning the 17 th century, in which the Dutch Republic saw tremendous economic development and became a leading financial, trade, cultural and military power in Europe. Many will recognize the Dutch masters of painting from this era, such as Rembrandt and Vermeer, while others might remember the philosophers Descartes and Spinoza, the former of whom, though a Frenchman, sought refuge in Holland, which was far more open-minded than almost any other place in Europe at the time. These examples showcase Holland as a major center for art, science and culture, a beacon of the Enlightenment.

The successes of the Dutch which enabled the flourishing of these new ideas came from their dominance in trade and from their innovations in banking and agriculture. Interestingly, all this development came during long wars with the Spanish Empire, the Eighty Years War (1568-1648), which ultimately saw the Dutch gain independence and consolidate their power, and the Thirty Years War (1618-1648), which was a larger conflict between the major powers of Europe. Since wars are very expensive and since the Spanish had closed Lisbon (the main trading hub of spices in Europe at the time) to Dutch merchants in 1580, they had to find other sources of revenue to sustain the young republic fighting for its existence.

In 1602 the Dutch East India Company (VOC) was founded. It was the first multinational corporation as well as the first publicly traded company in the world. It benefited from extensive government support, low interest rates, and new advancements in shipbuilding, such as the fluyt, a new type of ship, large and relatively cheap to manufacture. These factors allowed the Dutch to overtake the Portuguese in the spice trade which had massive profit margins, sometimes exceeding 400%. Dutch sailors travelled as far as Indonesia, Japan (for a long time the Dutch were the only Europeans allowed to trade there), China, the Caribbean, and Novaya Zemlya, they also had a hand in founding cities like Cape Town and New York. In only a few decades, the East India Company had a monopoly over the trade of spices like nutmeg, pepper and cloves, its own army (by some estimates, exceeding 10 000 soldiers) and wealth that surpassed most states at that time. It was, in effect, another state onto itself, and continued its existence until 1799.

In addition to the spice trade, the Dutch had other advantages. Holland was well situated for trade between the Baltics and the Atlantic. Cities like Amsterdam became centers of trade for all sorts of commodities like grain, precious metals and textiles. The wealth gained from trade was used for land reclamation from the sea, thus increasing agricultural output, and building canals, which eased the transport of goods throughout the country.

Finally, the Dutch were innovators of finance, creating some of the first stock markets and the world`s first insurance company. The stability of banks and the financial system allowed for the aforementioned low interest rates. Merchants and even common people could invest in the East India trading company with low risk. Before, a merchant usually invested in a single ship or voyage. If the ship sank, the investment disappeared with it. Now anyone could invest in multiple ships, thus cutting down the risk whilst maintaining the same level of profit.

On tulips

The tulip has its origins far from Europe, in the valleys of Tien Shan and the Pamir Mountains, which were originally inhabited by Turkish nomads. By the 16th century, the tulip had become a symbol of Turkish culture and a favored flower in the gardens of the elites, not excluding the Sultan himself. Although there is no definitive answer as to how the tulip made its way to Europe, it is widely believed that the Ottoman`s sent it as a gift to the Holy Roman Empire. The first record of the Tulip in Europe comes from the botanist Conrad Gesner, who first saw it in the garden of John Henry Herwart in Augsburg, Germany in 1559. Soon after that, another scientist, Carolus Clusius, introduced the flower to the Netherlands for the first time in 1593, by planting the flower in Leiden University`s botanical garden. Much of his study was devoted to so-called “broken tulips”, which often had a peculiar and extraordinary color in various patterns. He didn`t know it at the time, but this phenomenon was caused by the mosaic virus, which, as Clusius noted, lowered the broken tulip`s fertility. The tulip is a bulbous flower that blooms in the spring. There are two ways of propagating tulips- either by planting buds formed on the mother bulb or planting seeds. While planting seeds takes seven to twelve years to produce flowers, planting buds allowed the flower to blossom next year, it also made it possible for the bud to replace the original bulb by the end of the season. After blooming in spring, the bulb can be taken out of its bed in June, provided they were replanted by September.

Rise and fall

As the word spread about the new exotic flower from the East, the tulip quickly became popular in the Netherlands and in Europe as a whole. In the beginning, the bulbs (the trade happened only with bulbs, not the flowers themselves) were bought and sold only by those interested in the flower, such as experts, botanists and the wealthy, seeking to adorn their gardens. However, with gradually increasing popularity all across Europe and with steadily increasing prices, the tulip market was no longer filled only with connoisseurs and people that were simply fascinated by the beauty of the tulips. It was recognized by many as a market with huge potential profits. With an increasing volume of trades and new buyers entering all the time, the tulip market found itself restricted by the biology of the tulip, since they could only be exchanged during the summer. Thus, the new way of trading tulips was invented – future contracts, which eventually allowed year-round trading of bulbs in 1635. This change- the buying and selling of bulbs without a material base- was the foundation of the bubble.

As the amount of short sales increased more and more, the Dutch government begin to fear the possible outcome. They had already taken action against such practice’s decades before the tulip bubble, outlawing short-selling all the way back in 1608. Still, the trade continued, and the market boomed, with a steady stream of new customers entering the fray, hoping to buy and the sell the contracts for a profit. Newcomers to the market started gathering in private societies called “colleges”, which became notorious for their outrageous sales. The prices continued to skyrocket throughout 1636, and early 1637, with some of the rarest kinds, like Semper Augustus, reaching the price of a high-end house in Amsterdam for a single bulb.

In February of 1637, an ordinary trade auction opened in Haarlem, with a rather casual price of 1250 guilders as the opening bid. For some reason no one wanted to take the bid. This caused the auctioneers to lower the price several times within the day. Panic started. The message quickly spread throughout Holland, with investors rushing to sell that which was swiftly becoming useless and worthless. It had finally happened. The bubble had burst. The tulip market came crashing down, leaving behind its legend.

Was it really a mania?

In modern days, the central dispute about the tulip bubble is whether the increase and subsequent drop in prices were caused by irrationality or market “fundamentals”- factors which typically determine the price of a particular commodity. Secondly, there is disagreement as to the extent to which the crash affected the Dutch economy as a whole.

The story of the tulip bubble was popularized by the English poet and writer Charles Mackay in his book “Extraordinary Popular Delusions and the Madness of Crowds”, published in 1841. The book presents the story as we know it today- of a frenzy for tulips, of workers selling all their possessions for a single bulb, of people drowning themselves in canals after the crash (ironically, Mackay was himself involved in the infamous England railway bubble in the 1840s). Nowadays most agree that his take was embellished, to say the least, taken from hearsay and unreliable, moralistic figures were drawn up by the Dutch government post-crash. Nevertheless, there is some disagreement about the causes and severity of the tulip bubble.

The economist Peter M. Garber makes the case that, contrary to the popular story, the rise and fall of prices were not caused by collective madness but market fundamentals. When it comes to tulips, several factors made it ripe for instability. Because tulip bulbs could only be taken from their beds between June and September, all sales and purchases in other times of the year would have to be via futures contracts, which became more sought for as new traders entered the market, most of whom had no actual interest in the physical bulb, and as the market spread to France and England. In addition, the rarest and most expensive tulips were those infected by the mosaic virus, which often gave the tulip`s flower a beautiful color but also lowered the tulips fertility, which made the whole enterprise even riskier.

By comparing the prices of tulips post-crash and the prices of other flowers like Hyacinths, Gaber argues that the price drop is explained by an increase in supply, as varieties of bulbs become more common and are thus not out of line with what might expect with such a new commodity. It`s likely that the crash was also caused in part by the decrease in new buyers entering the market due to the lack of affordable bulbs. Others, like the historian and professor Anne Goldgar, argue that the high prices of especially the rare bulbs can be attributed to tulips role as a status symbol in 17 th century Holland, as well as France. The same people who bought rare bulbs for incredible prices might just as well buy a painting, or rare silks, or shells, or any other luxury product. They had money to spend and money to lose. There is, however, one aspect on the bubble which cannot be explained by such factors, and that is the price increase of the common bulbs during the final weeks of the bubble. Gaber states:” the increase and collapse of the relative price of common bulbs is the remarkable feature of this phase of the speculation.” A possible culprit for this part of the bubble may the outbreak of plague, which ravaged Holland and Europe during those years, giving the people a more fatalistic outlook on life and making them more prone to risky actions and investments.

There is also some dispute as to the extent of the damage the bubble did to the Dutch economy. Gaber points out the relative absence of the tulip bubble among later economic histories. In fact, the Dutch golden age went on despite the bubble for another 70 years or so. While the story has sometimes been evoked as an example for the necessity of state oversight, the Dutch government frowned upon “trading in the wind”- that is, trading without either the bulb or cash actually exchanging hands. They did not penalize merchants for engaging in such activities, but they would not enforce any futures contracts. In practice, this meant that the vast majority of people didn`t lose any money when the crash did occur, since the contract had no legal weight. Goldgar claims to have found no instances of anyone drowning themselves, and no cases of bankruptcy. The last statement is disputed by the scholar Douglas French. According to his research, the amount of bankruptcies in Amsterdam doubled between 1635-1637. He also found that litigations around the tulip bubble increased dramatically, suggesting a large amount of upheaval after the crash.

Summary and conclusions

The story of tulip mania has often been attributed to irrationality and used for comparison both to other bubbles in history and for market processes which some deem to be bubbles (like cryptocurrencies). Upon closer inspection, we see that the rise and fall of tulip prices between 1634 and 1637 can mostly be explained by market forces, not unlike those of other similar commodities. Whilst there is plenty of room for discussion and caveats, one can state confidently that the tulip bubble was far from a simple matter of market frenzy. So perhaps, in addition to the lessons about bubbles, we can also learn not to simplify history for our convenience.

Without an understanding of the nuances that make up an event such as this, there exists a serious risk of failing to recognize the real causes of crashes. A narrative that is less clear-cut, but which falls much closer to reality will always serve us better than a reduction to the simple, well known story filled with buzzwords.

Garber, P. M. (2000). Famous first bubbles: The fundamentals of early manias. Cambridge, MA: MIT Press.

Wielenga ,F. (2015). A history of the Netherlands. Bloomsbury Academic.

Arblaster, P. (1982). A history of the low countries. Palgrave Macmillan.

Alyssa Moore, Joanne Artz. & Craig R. Ehlen. International Journal of the Academic Business World, Fall 2017(Volume 11 Issue 2)


Tulip mania myth

.. A golden bait hung temptingly out before the people, and one after the other, they rushed to the tulip-marts, like flies around a honey-pot. Tulip mania was a frenzy. Everyone in the Netherlands was involved, from chimney-sweeps to aristocrats. The same tulip bulb, or rather tulip future, was traded sometimes 10 times a day. No one..

The Real Story Behind the 17th-Century 'Tulip Mania

  1. Tulip Mania, Not a Myth. The recent 'debunking' was anything but. Thursday, March 29, 2018. Douglas French. Economics Economic HIstory History Tulip mania Bubbles Boom and Bust Bitcoin. The recent decades of worldwide central bank financial repression and constant generation of asset booms and busts have led people to see this as normal
  2. Tulip Mania was popularised by an account written by the 19th-Century Scottish writer Charles Mackay, who loved a juicy story. He's not taken seriously as a historian, but his vivid tales have..
  3. The myth of Tulipmania. by Chris Bertram on May 12, 2007. Simon Kuper, in today's FT, reviews Anne Goldgar's _Tulipmania_, :http://www.ft.com/cms/s/50e2255e-0025-11dc-8c98-000b5df10621.html a new study of the 17th century boom and bust in the Dutch tulip market. Disappointingly, it turns out that most of the stories are false
  4. According to this narrative, everyone from the wealthiest merchants to the poorest chimney sweeps jumped into the tulip fray, buying bulbs at high prices and selling them for even more. Companies..
  5. Is Charles Mackay to blame for the mythology surrounding Tulip Mania? Tulips were part of a cornucopia of new plants to arrive in Europe in the 16th Century, including potatoes, green and red..
  6. The real story of the tulip bubble starts the same place as the myth: In the court of the Ottoman emperor in Constantinople. Here, Western traders are believed to have encountered the flowers and..

At the height of tulip mania, specific tulip varieties could go for as high as 10,000 guilders. At the time this was about the same price as a fancy town house in Amsterdam. In 1637 the tulip was the fourth most exported product in the Netherlands, followed by gin, herring, and cheese These tulips at Leiden would eventually lead to both the tulip mania and the tulip industry in the Netherlands. Over two raids, in 1596 and in 1598, more than one hundred bulbs were stolen from his garden. Tulips spread rapidly across Europe and more opulent varieties such as double tulips were already known in Europe by the early 17th century The myth of the Dutch Tulip bubble Tulip Mania was nothing like history remembers By The Smithsonian >>> Annotote the country experienced a major demographic shift during its war for.. The Tulip Mania is considered by many as the first recorded story of a financial bubble, which reportedly occurred in the 1600s. Tulips were introduced into Europe imported from the Ottoman Empire shortly after 1550, becoming a popular, exotic and costly item. Ten or eleven years after this period, tulips were much sought after by the wealthy,.

Tulip mania: the classic story of a Dutch financial bubble

Tulip mania was a short period in the Netherlands between the end of 1636 and early 1637 when tulip bulbs went for the price of a house. Legend has it when the bubble burst on tulip futures, investors were left bankrupt and resorted to suicide In 1634, the rage among the Dutch to possess [tulips] was so great that the ordinary industry of the country was neglected, and the population, even to its lowest dregs, embarked in the tulip trade. As the mania increased, prices augmented, until, in the year 1635, many persons were known to invest a fortune of 100,000 florins in the purchase of forty roots We all know the outline of the story—how otherwise sensible merchants, nobles, and artisans spent all they had (and much that they didn't) on tulip bulbs. We have heard how these bulbs changed hands hundreds of times in a single day, and how some bulbs, sold and resold for thousands of guilders, never even existed Tulip Mania is the go-to story whenever someone wants to talk about humanity's penchant for irrational exuberance in financial markets. It's the catchy name for the extraordinary rise in value, and subsequent crash, of Dutch tulip bulb valuations over a four month span from November 1636 to February 1637 As Anne Goldgar gently informs us in the beginning of her absorbing book, most of what we 'know' about tulip mania is pure fiction.--Ingrid D. Rowland New Republic (2/12/2008 12:00:00 AM) Goldgar persuasively demolishes most of the myths and exaggerations surrounding this affair. . .

. But many details of that story are untru Tulip Mania and today's economic bubbles. The idiocracy presented in the tulip mania cannot be exactly compared with the stupidity represented in the cryptocurrency rush that has been highly trending lately or other investment opportunities that have been also trending on social media as well as not to forget NFT arts The Tulip Mania is considered by many as the first recorded story of a financial bubble, which supposedly occurred in the 1600s. Before discussing if the Tulip Mania was really a financial bubble or not, let's go through the most common narrative that considers it to be a real bubble

Tulip Mania, Not a Myth - Foundation for Economic Educatio

  1. The story of Tulipmania, writes Doug French, is not only about tulips and their price movements, and certainly studying the fundamentals of the tulip market does not explain the occurrence of this speculative bubble. The price of tulips only served as a manifestation of the end result of a government policy that expanded the quantity of money and thus fostered an environmen
  2. The first documented asset bubble was the Dutch tulip mania in 1636 when speculation drove the value of the rarest tulips to six times the average salary at the time. Story stocks — where the narrative is more important than the numbers — are the new tulips, and Robinhood is the E*Trade equivalent of our age
  3. Today, you can buy several tulips for a couple of dollars. In 1637, you could buy every house on your street, for a couple of tulips. Patreon: https://www.p..

The truth about Tulip Mania - BBC New

Rational Minds Part 2: The Myth Of Tulip Mania — Anne Goldgar. December 17, 2020. The Jolly Swagman Podcast. Tulip Mania is often cited as the classic example of a financial bubble: when the price of something goes up and up, not because of its intrinsic value, but because people who buy it expect to be. [Tulip mania] was a middle-class phenomenon limited to a small number of people. I could only find 400 people who were involved in tulip trading in the towns I looked at. Few rich and poor. Special Episode: The Myth of the Tulip Bubble. In a pilot episode for a new Barron's podcast, host Sarah Green Carmichael gets the scoop on the Dutch tulip bubble-not the myth, but the real story. In short, the fallout of tulip mania is still visible and still important it has just taken on a different form. Bring Me Dead Flowers. Nowadays, many of Amsterdam's most magnificent, showy varieties of tulips have all but died out, and we can only imagine the glories that flowers like the General of Generals might have bestowed upon us

. Tulip mania was a frenzy. Everyone in the Netherlands was involved, from chimney-sweeps to aristocrats. The same tulip bulb, or rather tulip future, was traded sometimes 10 times a day. No one wanted the bulbs, only the profits - it was a phenomenon of pure greed Tulip mania gets brought up again and again, as a warning to investors not to be stupid, or to stay away from what some might call a good thing. But tulip mania was a historical event in a historical context, and whatever it is, Bitcoin is not tulip mania 2.0. This article was originally published on The Conversation. Read the original article The other myth was that Tulipmania destroyed the entire economy. Wikipedia Commons Most sectors of Dutch industry continued to grow until the mid-17th century Another monkey is holding up a tulip and a moneybag. This is the way Breughel indicated that this painting is about the tulip mania and the tulip trade around 1640. The deal is closed with a handshake, bulbs are weighed and money is counted, a lavish business diner is being enjoyed. The monkey on the left has a list with the names of expensive. The tulip mania ended up taking a life of its own. At the peak of the bubble, tulip bulbs were selling for nine times the average Dutchman's wages. This meant that the average Dutchman would have to work for nine years straight and survive without food or water to be able to buy a tulip bulb! The reality was as absurd as it sounds today

. It is misguided. At the heights of the bubble in early 2018, it would have been safe to classify the phenomenon as a mania Its devastating and original demolition of the myth of Tulip mania, the fineness of historical judgment and the painstaking reconstructions so effortlessly conveyed on the page make it a pleasure to read.-- John Brewer, author of A Sentimental Murder: Love and Madness in the Eighteenth Centur

Housing mania did not get as far out of hand as tulip mania. Nonetheless, many lives were ruined in Florida, Las Vegas, Phoenix, and dozens of places in California and elsewhere in the US Tulip mania wasn't a frenzy, either. In fact, for much of the period trading was relatively calm, located in taverns and neighbourhoods rather than on the stock exchange Tulip mania was irrational, the story goes. Tulip mania was a frenzy. Everyone in the Netherlands was involved, from chimney-sweeps to aristocrats. The same tulip bulb, or rather tulip future, was. A tulip fever and tulip mania. So the trade in tulip bulbs grew. The flower became very popular. The variations of the tulip flower became collector's items for which collectors, and everybody who could afford it, would pay big money. You can speak of a real tulip fever and people were so eager to have the flowers you can even call it a tulip. Alicia Vikander starred in a 2017 period drama about Tulip Mania titled, Tulip Fever. In Tulip Fever, the story of the main characters center around a love triangle, which artistically parallels the events of the Tulip Bubble in lockstep.As the absurdity of the characters' audacity for betrayal reaches ever-preposterous heights, so increases the price of tulips-until the bubble bursts

Tulipmania (also known as tulip mania) is a model for the general cycle of a financial bubble: investors lose track of rational expectations, psychological biases lead to a massive upswing in the price of an asset or sector, a positive-feedback cycle continues to inflate prices, investors realize that they are merely holding a tulip that they sold their houses for, prices collapse due to a. This article says that everything we've been told about the tulip mania is wrong. There definitely was a rapid rise in tulip bulb prices over several years, and prices did decline quickly. But many of the reasons cited for the price rise and decline are false, according to the author. Why have these myths persisted Tulip mania . Tulips became a luxury item and a status symbol. People were willing to pay vast sums of money for a single bulb and the prices rose constantly. Soon tulip mania was gripping the country. The speculation in bulbs increased as people saw this as a quick and easy route to making their fortune

  1. imal investment and small parcels of land, harkening back to the days of farmers taking up coin clipping during the Kipper und Wipperzeit
  2. Letter: Don't compare tulip mania with cryptocurrencies. From Joseph von Zanten, Tulipmania, much of the traditional tulip tale is no more than an unfounded myth
  3. Tulip Mania is when in the 1637, the contracts of Tulip bulbs in Netherlands went to unprecedented prices and later collapsed dramatically. Historians are still debating whether or not it cost a significant loss to the economy. Nevertheless it left a lot of people with huge losses

The myth of Tulipmania — Crooked Timbe

What is Tulip Mania? In the 1600s, people in the Netherlands were experiencing the Dutch Golden Age, mainly due to its growing international commerce and trading operations. That is the birthplace of Tulip Mania. We know what you're thinking—tulips? The flowers? Yes, you're right. During this time, the tulips mutated naturally, creating. One comparison that is often used to denigrate Bitcoin is to compare Bitcoin to the tulip mania which took place in Amsterdam in the 1600's. At the time, collecting was a common form of investment and the tulip, which was considered a scarce collectible, quickly rose in value, increasing several thousand percent Dutch paintings of Semper Augustus tulips from the 1600s. Tulip Mania. By November of 1636, Tulip Mania had officially begun. Speculators continued to frantically purchase tulips, tulip bulbs and tulip contracts, pushing prices to extraordinary levels This quote aptly sums up the 'Tulip Mania', that occurred in the Netherlands in the early 17th century. Whenever the topic of financial crisis and economic bubbles comes up, the story of the Dutch tulip bulb market bubble of 1637, also known as 'Tulip Mania', almost always finds a mention

Yes, tulips. As in the colorful flowers decorating the wallpaper of your grandma's bathroom. Believe it or not, in the year 1637, tulips were all the rage. Seriously this trend puts all other fads to shame. Beatles-mania, Poke-mania and Furby-mania have nothing on the Tulip Bulb craze! (Listen to our podcast episode about it here! One of the constantly repeated myths about the 1630s is that the whole country, rich and poor, became engulfed in a passion for tulips. Although it has not been possible to identify everyone in the cities I have studied who took part in the tulip trade, I have located around 285 people in Haarlem (mentioned at the time as the centre of the trade) who bought and sold tulips out of a population.

Tulip mania is just the backdro p to the story, which revolves around Sophia (Vikander) the orphan, who is married away to wealthy merchant Cornelis Sandvoort (Christoph Waltz). Then she falls hopelessly in love Jan Van Loos (Dane DeHaan), a starving artist hired to paint the couple's portrait The tulip trade was also not an innovation or anything new in the world, whereas Bitcoin is the first of its kind and has seen numerous tokens and models following its wake. There was no such thing as Rose Mania and it's highly unlikely that there ever will be This story does not start in Holland, but it does end there. In simplest terms, Tulips are from Central Asia. And Daffodils are from Spain and Portugal. Certainly, few flowers have been more intensely worked on than these

There Never Was a Real Tulip Fever History Smithsonian

Tulip Fever In 18th-century Amsterdam, at the height of tulip mania, a young artist is hired to paint the portrait of a wealthy merchant and his wife. 3 days left to watc Bitcoiners Go Wild After Goldman Revives Tulip Mania Comparison By . Vildana Hajric. May 27, 2020, 1:35 PM EDT 'We do not recommend Bitcoin' to clients: Goldman Sachs repor

You might be familiar with tulip mania, a period of time in The Netherlands when tulip bulbs were selling for ridiculous prices. Some of the stories are actually myths and exaggerations, but bulbs did sell for high prices. Tulip with a virus that looks similar to Tulip Canada 150 The digital highlights are not catching on with the common-day fan who most likely thinks it will crash eventually. It's not unlike Dutch tulip mania, even after some myths around it were.

In the seventeenth century tulips became insanely popular in the Netherlands. The flower had been introduced into the Netherlands from the Turkish Empire in the sixteenth century. In 1635 the trade in tulips spiralled and a real tulip mania seized the population: rich and poor alike joined in the speculation. On 3 February 1637, however, the bubble burst 1. Tulip. In 1635, the price of a certain kind of tulip reached 1615 Florins. At the same time, the prices of four bulls and 1,000 pounds of cheese were only 480 Florins and 120 Florins respectively. The price of a tulip, however, kept soaring to a level the next year that one tulip of a rare species was sold at 4600 Florins They eventually pop when investors realize prices are much higher than an asset's fundamental value. Bitcoin is occasionally compared to an infamous early speculative bubble: the 17th century Dutch tulip mania. In 1637, speculators caused prices for some tulip varieties to surge 26-fold

Tulip mania took place in 17 th Century Holland, starting out roughly in 1624 and hitting its peak between 1636 and 1637. Although the extent of how widespread Tulip mania was is still largely debated, it's undeniable that the price of tulip bulbs soared to ridiculous heights - with a single tulip bulb often being worth more than a skilled tradesman's yearly wage Hitta perfekta Tulip Mania bilder och redaktionellt nyhetsbildmaterial hos Getty Images. Välj mellan premium Tulip Mania av högsta kvalitet Satire on Tulip mania by Jan Brueghel the Younger, circa 1640 (Frans Hals Museum, Haarlem). The painting shows monkeys dealing in tulips. On the left, one monkey points to flowering tulips while another holds up a tulip and a moneybag. Bulbs are weighed, money is counted, a lavish business dinner is enjoyed

Was Tulip Mania really the first great financial bubble

  • Tulip mania was a brief but intense speculative bubble in what is now the Netherlands that lasted only a matter of months between late 1636 and February 1637. While only impacting a tiny section of the economy, at its height a single pound of bulbs cost a reported 1,500 guilders — roughly equivalent to four years' salary for a skilled carpenter
  • Tulip mania bubble is the first-ever recorded stock market bubble. It was reported on the Amsterdam stock exchange of Netherlands way back in the 16th centur
  • Tulip Season 2021 As a local Dutchman I try to photograph the tulips every spring whenever I am in the country. It's challenging to come up with new compositions and try to photograph the tulips in an original way
  • Tulip mania refers to a period during the Dutch Golden Age, when tulips became a speculative asset that saw early futures contracts reaching prices ten times that of an artisan's salary. No actual tulips traded, but when prices came crashing back down, it left many with life fortunes lost - enough to make history as the first major bubble burst ever recorded
  • Tulip Mania Tulip is on Facebook. Join Facebook to connect with Tulip Mania Tulip and others you may know. Facebook gives people the power to share and makes the world more open and connected

The Real Story of the Dutch Tulip Bubble Is Even More

Tulip Mania - ทิวลิป มาเนีย, กรุงเทพมหานคร ประเทศไทย. 74 likes · 4 talking about this. Tulip. WS More or Less: Tulipmania mythology The story goes that Amsterdam in the 1630's was gripped by a mania for Tulip flowers. But then there was a crash in the market. People ended up bankrupt and threw themselves into canals Tulip mania, a period in the 17th century when prices of tulips in the Netherlands reached astronomical highs, is considered the first financial bubble. After tulips became so expensive that the cost of a single bulb exceeded that of an average home, the price collapsed, and many investors went bankrupt The Dutch Tulip Mania bubble, when the flower cost more than a canal house in Amsterdam and a sailor was jailed for eating a tulip bulb by mistake Jan 13, 2018 Goran Blazeski We often say that economic bubbles are irrational, but it seems that, in some way, we must like the irrationality that surrounds this rather strange free-market phenomenon since we keep repeating the same mistakes.

In the 1630s, the Netherlands was gripped by Tulipmania: a speculative fever unprecedented in scale and, as popular history would have it, folly. We all know the outline of the story—how otherwise sensible merchants, nobles, and artisans spent all they had (and much that they didn't) on Tulip bulbs. We have heard how The myth of frog-boiling is that if you put a frog directly into boiling water it jumps out, but if you put it in cold water and bring it gradually to the boil, it gets acclimatised until it ends up cooked. In real life, As for tulip mania, no doubt someone will breed a new tulip and call it Brexit Although the Tulip Mania is frequently mentioned in economic textbooks, it's true story has rarely been told. Mike Dash explains why the tulip, in rare variants that owed their extraordinary color patterns to infection by the mosaic virus, was so rare and so highly coveted This is an important book that destroys the myth of The tulip bubble. It's think and deep and very detailed (I couldn't keep all the Dutch names separate), and it has to be, so you understand the context. There was no Tulip bubble, but the truth is far more interesting than that! The story is deftly told by a skilled researcher and writer

The Story of Tulip Mania - Now, where shall we begin

Tulip Mania, Not a Myth. Douglas French | March 29, 2018. Economics. The Difference between a Bitcoin and a Tulip. Bronwyn Howell | January 09, 2018. Economics. Why Movie Viewers Should See Tulip Fever Douglas French | September 12, 2017. Education. Homeschooling in the Time of COVID-19 I've had quite a few people refer me to tulipmania, the fabled 17th century example of irrational exuberance for an intrinsically worthless good fueling a bubble until it strips itself bare and collapses, when I begin to make the long-term case for crypto-assets Tulip Mania During the 1600s when tulips were extremely valuable they caused what's now known as Tulip Mania. People in the Netherlands traded tulips for their value, and the flowers actually ended up causing what some say is the first economic crash, likely due to the bubonic plague. 9 The first documented asset bubble was the Dutch tulip mania in 1636, It's a myth. All of Tesla is an Overpriced Myth - their products and their share price especially

Tulip - Wikipedi

  • Tulip mania was a frenzy. Everyone in the Netherlands was involved, from chimney-sweeps to aristocrats. The same tulip bulb, or rather tulip future, was traded sometimes 10 times a day. No one wanted the bulbs, only the profits - it was a phenomenon of pure greed. Tulips were sold for crazy prices - the price of houses - and fortunes were.
  • Mythology. Pan and Syrinx, Daphne and Apollo, Daedalus and Icarus and plenty of other mythological couples have een depicted on Delft tiles. They are mysterious, Newsletter - Tulip Mania on our website . Sales exhibition 29th of December 2020.
  • ant nation on the planet. Tulip Mania is an atypical example of typical supply and demand economics. Simply put, tulip bulb prices followed skyrocketing demand. In turn, the Tulip Mania bubble burst in 1637 when prices bottomed out

TLDR: Dutch tulip mania was a myth by Anthony Bardaro

In the mid-1630s, Holland went tulip crazy. According to the standard account, fortunes changed hands for a single bulb until, in February 1637, the bottom fell out of the market Tulip mania came to an end in 1637 and the Dutch government issued a decree stating that tulips had to be bought and sold in cash, also meaning that they could not be used as a collateral for loans from Dutch banks. Tulips today. Today, tulips can be bought for a reasonable price, you no longer have to sell your house to get your hands on one

The Tulip Mania - Lisbon Investment Societ

Tulip Mania Not A Myth Foundation For Economic Education A Brief History Of Financial Bubbles Stanford Graduate School Of The Dutch Tulip Craze Thisara Medium Tulipomania Tulip Mania The Classic Story Of A Dutch Financial Bubble Is The Flower That Consumed A Nation Tulip Mania 1636 1637 The. The Tulip Bulb Mania Myth. In early 17th century Holland tulips (and hyacinths and other pretty flowers) became highly fashionable and a large market for them emerged


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Crisis Chronicles: Tulip Mania, 1633-37

James Narron and David Skeie

As Mike Dash notes in his well-researched and gripping Tulipomania, tulips are native to central Asia and arrived in the 1570s in what’s now Holland, primarily through the efforts of botanist Charles de L’Escluse, who classified and spread tulip bulbs among horticulturalists in the late 1500s and early 1600s. By the early 1630s, the tulip was a fixture in Dutch gardens. But Tulip Mania didn’t begin until the summer of 1633, when a house in Hoorn was exchanged for three rare tulips and a Frisian farmhouse was traded for a number of tulip bulbs. The lure of profit enticed novice florists to enter the tulip trade with minimal investment and small parcels of land, harkening back to the days of farmers taking up coin clipping during the Kipper und Wipperzeit. In this edition of Crisis Chronicles, we exchange the trading floors of today for the alcohol-fueled exchanges of the past as we dig up Tulip Mania.

The Plague and Tulip Mania
A number of factors contributed to the conditions that caused Tulip Mania. To start, the coin debasement crisis of the 1620s was followed by a period of prosperity in the 1630s. This prosperity coincided with an outbreak of the plague, which caused a labor shortage and increased real wages and surplus income. At the same time, there was a strong belief that social mobility was a Dutch birthright and that there was money to be made in every profession.

Prior to the 1630s, tulip bulbs were only physically traded among growers in the summer, when they could be safely pulled from the ground, in what evolved to be an informal spot market for individual commodities where cash and real assets traded hands. By the 1630s, the market for tulips began to grow as florists started buying and selling tulip bulbs still in the ground using promissory notes. The notes provided welcome credit and liquidity to help finance planting and limited credit risk to a known borrower with the borrower’s bulbs as collateral. However, the notes created a limited opportunity to inspect bulbs or to see them flower, provided no guarantee of quality, nor proof that the bulbs actually belonged to the seller, or even existed. Because delivery of the bulb was often months away, this financial innovation ultimately encouraged speculation as florists bought and sold promissory notes, which were in turn resold, creating a futures market. A legitimate need for financing real assets led to a financial market in which people with no stake in the actual underlying bulbs could participate. As Dash points out, it was “normal for florists to sell tulips they could not deliver, to buyers who did not have the cash to pay for them and who had no desire to plant them.” Such a financial market served the liquidity and credit needs of growers and florists, but it also led to highly leveraged speculation by those who could borrow to finance their investments with little of their own capital at stake. Promissory notes quickly transformed from a credit and liquidity mechanism to an instrument of speculation.


Beers Instead of Beurs Fuel the Market
Bulbs were traded not at the exchange buildings in Amsterdam, the beurs, but rather in local pubs where each trade was celebrated with a toast. The in het ootje method of trade required the seller to pay a commission independent of the seller’s acceptance or refusal of the bid (typically the equivalent of a round or two of drinks), which placed a premium on accepting a decent bid, further fueling the market.

The mania climaxed in January 1637, which marked the greatest influx of new florists. Many of these novices leveraged savings and mortgaged their goods or tools to take part in the bulb trade, just as we saw farmers turn to coin clipping during the Kipper und Wipperzeit. The absolute speculative peak is believed to be an auction on February 5, 1637, which raised 90,000 guilders. To put this in perspective, the wealthiest merchants of the day might’ve accumulated wealth of half a million guilders.


Some Florists Pull Back
With no predictability or stability in the bulb market, the market was unsustainable. By late January 1637, isolated florists sold their holdings and failed to reinvest. Other florists took notice. By the first week of February 1637, the boom ended with a crash that began at an auction in Haarlem. The first offer of bulbs at auction didn’t receive bids. The price was lowered, still with no bids, then lowered again. The once-plentiful liquidity provided by outside speculators dried up nearly instantaneously. With the auctioneer unable to find a price at which bulbs would sell, the panicked withdrawal of purchasing speculators spread to panicked “fire sales” by leveraged speculators who had bought bulbs on margin and needed to sell. “The market for tulip bulbs simply ceased to exist,” as Tulipomania reports. When bulbs could be sold, it was for 1 to 5 percent of the previous value.


Collapse Leads to Grudging Compromise
The spontaneous development of an extremely leveraged futures market certainly wasn’t new—futures markets date back to Mesopotamia, but it was the fertilizer that grew the tulip bulb trade from market, to bubble, to bust. When the bubble burst, some highly leveraged florists who had paid only small deposits still owed bulb owners huge sums of money. With the collapsed market, florists hoped to pay nothing. On February 23, growers proposed to the courts of the United Provinces that florists buy the bulbs at 10 percent of the agreed-upon selling price. After a lengthy deliberation, the courts banned tulip cases and asked that all disputes be handled at the local level. With no collective bankruptcy protections or procedures to guide resolution, growers and florists were forced to settle their disagreements individually.

This futures market for tulip bulbs was volatile and poorly regulated—more weed than flower. Rights of ownership were unclear, as growers and florists sought resolution from the tangle of transactions. And if just one florist in the chain was insolvent, the entire chain collapsed. Since the enormous interconnected claims were handled outside the courts, there was little legal protection for creditors or debtors and no clear legal status to settle the claims. That’s why even fire-sale prices of 1 to 5 percent of initial prices, driven down by desperate sellers (debtors) fearing bankruptcy, didn’t stick. Nor did the buyers get stuck with paying 10 percent of the agreed-upon prices, as had been proposed to the courts. Without enforceable debt claims or sales prices, the tulip bulb crisis ended in grudging compromise between individual growers and florists with massive write-downs of debt. However, the disruption and losses to growers, florists, and speculators were largely contained among market participants. The tulip market and the players in it weren’t interlocked with the banking sector or other credit providers. There was no lasting spillover to the real economy and no real market or legal reforms emanating from the crisis.


Lessons for Regulators
It’s interesting to compare Tulip Mania with more modern debt crises, where asset classes have strong legal protections for creditors with interconnected claims. Take securitized mortgage-backed assets, for example. In a typical crisis, market seizure initially leads to potential fire-sale prices that may wipe out debtor financial institutions. Official sector support steps in to curtail full financial contagion and systemic collapse, thus limiting spillover to the real economy. Individual debtholders (households), however, typically aren’t considered contagious or systemic to the financial system. But with no efficient private sector debt write-down mechanism at households’ disposal, there’s a greater chance for household debt to trigger a large negative spillover to the real economy.

Post-crisis, regulators and lawmakers have indeed focused much needed attention on enhancing consumer protections, including introducing a private sector debt write-down mechanism via the recently extended Home Affordable Refinance Program and providing opportunities for improved access to refinancing opportunities for underwater mortgages, as described in a recent Liberty Street Economics post. One of the most talked-about methods of tempering speculation in the housing market, where by nature purchases are highly leveraged, is to promote strong lending practices by seeking risk retention on the books of the mortgage originator. Regulators have recently sought to “crowd in” private capital according to the “originate-to-distribute” securitization model by raising government-sponsored-enterprise (GSE) guarantee fees. As Congress prepares to enact further GSE reforms, tell us which mortgage market improvements you think would be most impactful.

In a future post on the British credit crisis of 1772, we’ll touch on another example of how a credit crisis can lead to a debt crisis—this time with a spillover to the real economy.


Disclaimer
The views expressed in this post are those of the authors and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

James Narron is a senior vice president in the Federal Reserve Bank of New York’s Executive Office.


David Skeie is a senior economist in the Bank’s Research and Statistics Group.


Elsewhere on CapX

Why have these myths persisted? We can blame a few authors and the fact they were bestsellers. In 1637, after the crash, the Dutch tradition of satirical songs kicked in, and pamphlets were sold making fun of traders. These were picked up by writers later in the 17th century, and then by a late 18th-century German writer of a history of inventions, which had huge success and was translated into English. This book was in turn plundered by Charles Mackay, whose Extraordinary Popular Delusions and the Madness of Crowds of 1841 has had huge and undeserved success. Much of what Mackay says about tulip mania comes straight from the satirical songs of 1637 – and it is repeated endlessly on financial websites, in blogs, on Twitter, and in popular finance books like A Random Walk down Wall Street. But what we are hearing are the fears of 17th-century people about a 17th-century situation.

It was not actually the case that newcomers to the market caused the crash, or that foolishness and greed overtook those who traded in tulips. But this, and the possible social and cultural changes stemming from massive shifts in the distribution of wealth, were fears then and are fears now. Tulip mania gets brought up again and again, as a warning to investors not to be stupid, or to stay away from what some might call a good thing. But tulip mania was a historical event in a historical context, and whatever it is, Bitcoin is not tulip mania 2.0.

This article was originally published on The Conversation. Read the original article.

Anne Goldgar is Professor of Early Modern History at King's College London.


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