Considered to be one of the first crashes in history, the tulip economic crash is described as an asset price bubble. The bubble itself is centred on a particular asset or commodity, in this case, the tulip.
1554
The tulip was introduced to Vienna in 1554 from the Ottoman Empire. It then spread to other areas including Amsterdam. Popularity for cultivating the tulip grew towards the end of century and tulips became part of the symbols of wealth. Wealthy households would grow tulips in their gardens.
Broken Tulip
The tulip itself is a large flower, intense in petal colour and blooms in April and May in the northern hemisphere. The broken tulip is a multi-coloured tulip with beautiful patterns. This is caused by a mosaic virus known as the ‘tulip breaking virus’ which breaks the colours in a petal. This is passed on through the bulb and outgrowths of that, not in the seeds of the tulips. They are rare, beautiful and thus valuable.
The broken tulip bulb was at the top of the tulip market in price. Underneath that came the regular tulip bulbs.
1634
The price of the broken tulip bulbs began to rise as demand increased. Alongside that, the common tulip bulbs also began to rise in value. Speculative investing in future contracts wasn’t exactly legal in Holland at this time. So any speculators who wanted to essentially bet on the tulip market and attempt to make a profit, did so in taverns, away from the official trading areas. It wasn’t regulated, wasn’t legally enforceable and it didn’t take a lot of money to speculate, risk was low. No bulbs were actually changing hands, it wasn’t about that. It was about the speculating on the price.
1637
Some future contracts were being exchanged over and over, and no delivery of actual tulips were being made to fulfil these contracts. The second week of February 1637 is when the tulip market actually crashed, though the chain of events of those days and weeks before are unknown. One reason suggested is that the price of tulips reached ridiculous levels that there weren’t any buyers left who could afford them.
Modern Interpretations
There have been many things written about this crash over the centuries, displaying varying degrees of disaster. Earlier accounts suggest that this hit the economy hard and people lost a lot of money. There were leaflets being sent out after the event to warn against speculative investing. Later sources suggest that the consequences were not that bad, and limited to a handful of people rather than the economy at large. As the tulips weren’t delivered and money didn’t really change hands especially of the higher value contracts, not a lot of money was actually exchanged to settle the contracts.
Either way, the tulip mania is cited when a financial crash happened after that. It demonstrates the beginnings of the horrors of the financial world, the complexities of human emotions as we get caught up in gambling and addictive behaviour patterns. It demonstrates how the value of a commodity can inflate and deflate simply on the confidence of the people investing in it rather than the intrinsic value of the commodity itself.
One thought on “The Evolution of Tulip Mania”