Tulip Mania
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Tulip Mania
Tulips originally came from Turkey and they were introduced to the Netherlands about 1593, where they thrived in the local soil.
Breeding was commenced in order to find varieties that suited the rather harsh climate of the Netherlands. Tulips quickly became very popular among the rich and fashionable and new breeds were given exotic names or named after Dutch naval admirals. Breeds with vivid colors, lines or flames quickly became highly sought over. The prices of tulip bulbs began to rise sharply.
Speculators began buying and selling tulips and making huge profits. By 1634 even ordinary workers began investing their money in tulip bulbs.
By 1635 many people were buying bulbs on credit. In addition, people were buying "futures contracts" for tulip bulbs - that is, prices that they would buy (or sell) a certain quantity of bulbs at a certain price at a given date in the future. This was a potentially highly profitable but equally an extremely dangerous form of investment.
The inevitable happened in February 1637: the high prices could not keep going up, the financial bubble burst, and many people failed to pay their massive debts and were financially ruined. The courts ruled that no one who lent money to people to "invest" in the tulip mania craze could force the debtors to repay the debts as the debts were undertaken due to the pressure of gambling and thus not enforceable by law.
The Netherlands' tulip mania has been history's most famous financial craze, but it has not been the only one. Others have included: the South Sea Bubble (18th century); the Mississippi Bubble (1718-20); and the massive investments in "derivatives" in the leadup to the 2007-09 Global Financial Crisis.
Tulipomania : The Story of the World's Most Coveted Flower & the Extraordinary Passions It Aroused
Tulipomania : The Story of the World's Most Coveted Flower & the Extraordinary Passions It Aroused
Amazon Price: $7.43 (as of 02/16/2012)
For history buffs or gardeners who enjoy more than just digging in the dirt, Tulipomania presents a fascinating look at the tulip frenzy that took place in Holland in the mid-1600s. Beginning as gifts given among the wealthy and educated folk of Europe and Asia, the tulip rapidly became a source of incredible financial gain--similar to today's Internet start-up companies or Beanie Baby collections. Stories of craftsmen discontinuing their trade and focusing on raising tulips for public auction, where they sold for prices comparable to that of a manor house, are astonishing. Poets, moralists, businessmen--it seems everyone was involved at some level.
Lack of regulation and poor quality control were just a couple of the details that led to the abrupt crash in February 1637. Tulipomania was the original market bust--people were ruined, debts went unpaid. It was a disaster similar to the stock-market crash of 1929. A brief resurrection of the mania occurred 65 years later in Istanbul, and while it was not the financial obsession Holland experienced, it led to the creation of standards in flower shape and increased the development of new types. You don't need to be obsessed to enjoy this book--an interest in tulips, history, and the futures market ensures that this will be a remarkable read.
Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age
Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age
Amazon Price: $22.20 (as of 02/16/2012)
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 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. Tulipmania is seen as an example of the gullibility of crowds and the dangers of financial speculation.
But it wasn't like that. As Anne Goldgar reveals in Tulipmania, not one of these stories is true. Making use of extensive archival research, she lays waste to the legends, revealing that while the 1630s did see a speculative bubble in tulip prices, neither the height of the bubble nor its bursting were anywhere near as dramatic as we tend to think. By clearing away the accumulated myths, Goldgar is able to show us instead the far more interesting reality: the ways in which tulipmania reflected deep anxieties about the transformation of Dutch society in the Golden Age.
Extraordinary Popular Delusions and The Madness of Crowds
Extraordinary Popular Delusions and The Madness of Crowds
Amazon Price: $8.00 (as of 02/16/2012)
Why do otherwise intelligent individuals form seething masses of idiocy when they engage in collective action? Why do financially sensible people jump lemming-like into hare-brained speculative frenzies--only to jump broker-like out of windows when their fantasies dissolve? We may think that the Great Crash of 1929, junk bonds of the '80s, and over-valued high-tech stocks of the '90s are peculiarly 20th century aberrations, but Mackay's classic--first published in 1841--shows that the madness and confusion of crowds knows no limits, and has no temporal bounds. These are extraordinarily illuminating,and, unfortunately, entertaining tales of chicanery, greed and naivete. Essential reading for any student of human nature or the transmission of ideas.
In fact, cases such as Tulipomania in 1624--when Tulip bulbs traded at a higher price than gold--suggest the existence of what I would dub "Mackay's Law of Mass Action:" when it comes to the effect of social behavior on the intelligence of individuals, 1+1 is often less than 2, and sometimes considerably less than 0.
Tulip Mania (article)
The event was popularized in 1841 by the book Extraordinary Popular Delusions and the Madness of Crowds, written by British journalist Charles Mackay. According to Mackay, at one point 12 acres (5 ha) of land were offered for a Semper Augustus bulb. Mackay claims that many such investors were ruined by the fall in prices, and Dutch commerce suffered a severe shock. Although Mackay's book is a classic that is widely reprinted today, his account is contested. Many modern scholars believe that the mania was not as extraordinary as Mackay described, with some arguing that the price changes may not have constituted a bubble.
Research on the tulip mania is difficult because of the limited data from the 1630s-much of which comes from biased and anti-speculative sources. Although these explanations are not generally accepted, 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 prices on the flower's introduction, which then fell dramatically. The high 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.
Article: Wikipedia
Painting: Flora's mallewagen. Allegory of the Tulip Mania. (Painter: Hendrik Gerritsz Pot)
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Serenia
Jan 18, 2011 @ 3:37 pm | delete
- I LOVE Tulips!!! I also have the same Book by Mike Dash. Thank you an interesting lens.
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