Tulip crisis, tulip fever, the first economic bubble or the Dutch tulip bubble. These are just a few of the most common names for a key event in the emergence of capitalism, with the most significant milestones taking place between 1634 and 1637. It is one of the most famous market bubbles and crashes of all time. It occurred in Holland in the early to mid-17th century, when speculation drove the value of tulip bulbs to extremes. At the peak of the market, the rarest tulip bulbs sold for up to six times the average person’s annual salary or the price of three houses in Amsterdam.
Fun fact: Before the rise of their prices, one bulb was selling for less than 1 guilder, but not long after, the price skyrocketed to more than 1200 guilders.
Today, Tulip mania serves as an allegory of the traps that excessive greed and speculation can bring. It is often likened to today’s popular cryptocurrencies, which change their value just as wildly and without any underlying foundation.
While on the topic of cryptocurencies, you can learn how to mine it on your phone here.
The history of the great tulip crisis
Tulips first appeared in Europe in the 16th century, arriving here via the spice trade routes that gave these imported flowers, which were unlike any other flower from the continent, a sense of exoticism and uniqueness. The Netherlands at that time was in great shape thanks to trade and several bountiful years. There were many merchants and wealthy people who had a surplus of money and benefited mainly from overseas trade.
It is no wonder that tulips have become a luxury item for the gardens of wealthy people, noblemen and rich merchants. Tulips became a status issue for the rich, on which they measured their success. Following the wealthy, the merchant middle classes of Dutch society (which did not exist in such a developed form elsewhere in Europe at the time) sought to emulate their wealthier neighbours and also demanded tulips. Initially, it was a status item that was bought precisely because it was expensive. Unlike gold and precious metals, however, tulips were fleeting and could not hold their value.
Fun fact: Looking back in time, it is interesting to note that during the tulip crisis the Netherlands was also hit by the bubonic plague, which mercilessly mowed down a third of the population of the larger cities. It was during this period when the pursuit of status, trade, speculation and wealth took place.
At the same time, however, tulips were known to be notoriously fragile and would easily die without careful cultivation. In the early 16th century, professional tulip growers began to refine cultivation techniques and local production of these flowers, establishing a thriving trade that has endured to this day.
The Dutch soon learned that tulips could grow from seeds or buds that grew on the mother bulb. A bulb grown from seed took seven to twelve years to flower, but the bulb itself could flower the following year. The so-called broken bulbs were a type of tulip with a striped, multi-coloured pattern instead of a single solid colour, which evolved from a mosaic strain of the virus that was infecting the flower. Paradoxically, this virus caused the uniqueness of each flower and aroused even more interest in people. These variations caused by the virus were the catalyst that caused the growing demand for rare tulips with broken bulbs, which eventually led to their high market price.
In 1634, Holland was struck by tulip mania and fever. So great was the desire among the Dutch to possess tulip bulbs that they neglected the country’s normal industry and the population, down to the lowest classes, went into the tulip trade.
A single bulb could be worth as much as 4,000 or even 5,500 florins – given that the florins of 1630 were gold coins of uncertain weight and quality, it is difficult to accurately estimate their value in dollars today. This means that the best of the tulips would be worth up to 700 thousand dollars in today’s money (however, many bulbs trade between 20 and 70 thousand dollars. By 1636, demand for tulips was so great that regular markets were set up to sell them on the Amsterdam Stock Exchange, in Rotterdam, Haarlem and other cities.
Fun fact: Tulips were introduced to Holland in 1593 and flourished mainly between 1634 and 1637.
At the time, professional traders got in on the action and everyone seemed to be making money just by owning some of these rare bulbs. Indeed, it seemed at the time that the price could only go up and that the passion for tulips would last forever. People started buying tulips with leverage, using margin derivative contracts to buy more than they could afford. But just as quickly as it started, the confidence dissipated. By the end of 1637, prices began to fall and never came back. Advanced capitalism showed its ugly face.
A large contributor to this rapid decline was the fact that people were buying bulbs on credit, hoping to repay their loans when they sold the bulbs at a profit. However, once prices began to fall, holders were forced to liquidate – to sell their bulbs at any price and declare bankruptcy in the process. Hundreds of people who only a few months ago had begun to doubt that there was such a thing as poverty in the country suddenly found themselves in the position of owning a few bulbs that no one wanted to buy, even at prices equivalent to a quarter of their cost. In 1638, prices of tulip bulb-s were back where they came from.
How did the bubble burst?
At the end of 1637, the bubble burst. Buyers announced that they were unable to pay the high price that had been previously agreed for the bulbs, and the market collapsed. While this was not a devastating event for the national economy, it undermined social expectations. The event destroyed relationships built on trust and people’s willingness and ability to pay.
Dutch Calvinists painted an exaggerated picture of economic doom because they feared that a consumer boom fueled by tulips would lead to social decline. They insisted that such great wealth was ungodly, a belief that persists to this day.
For most ordinary Dutch people of the time, the Tulip Crisis was a bizarre phenomenon, and so they went on with their ordinary life. Of course, even these people often got mixed up in the tempting quest for wealth.
The Tulip Crisis has captured the public imagination for generations, demonstrating the power of capitalism, and has been the subject of several books, including Deborah Moggach’s novel Tulip Fever.
The Tulip Craze swept through all classes of Dutch society in the 1730s. Scottish journalist Charles Mackay wrote in his famous 1841 book, Extraordinary Popular Delusions and the Madness of Crowds, that everyone from the richest merchants to the poorest chimney sweeps went into tulip fever, buying bulbs at high prices and selling them at even higher prices.
Dutch speculators spent incredible sums on these bulbs, but the flowers only grew for a week – many trading companies were set up for the sole purpose of trading tulips. By the late 1730s, however, the trade had reached its peak.
If you want to learn how to avoid risking like the Dutch, here are some tips
Origin of futures contracts
In addition, due to the timing of tulip cultivation, there has always been a lag of several years between the pressure of demand and supply. Under normal conditions this was not a problem because future consumption was contracted a year or more in advance. Because the price increase in 1630 occurred so quickly and after the bulbs had already been planted for the year, growers would not have had the opportunity to increase production in response to the price.
Because of such a delay in production and the fact that growers entered into legal contracts for the later sale of tulips (similar to futures contracts).
t futures contracts that were strictly enforced by the Dutch government, prices rose for the simple reason that suppliers could not meet all the demand. In fact, actual sales of new tulip bulbs were at normal levels throughout the period.
Conclusion
This story of beautiful flowers and a advanced trading society has become a favourite with economists explaining stock investing and the moral that greed is bad and blindly chasing prices can be dangerous. The Tulip Crisis has become a tale of morality and markets, a reminder that what goes up must come down. Moreover, the Church has seized on this fairy tale as a warning against the sins of greed and avarice. It has thus become not only a cultural parable but also a religious apologia. However, the Netherlands is left with the tulip as a symbol of the country and the tulip fields are the domain of the country.
