Tulipmania: The First Economic Bubble in History

On the 3 of February it was 382 years from the day when due to exchange panic several thousands of rich Netherlanders lost their wealth.

Financial fraud that makes lots of people suffer is not something that has appeared recently. One of the first situations when exchange deals were substituted by fake ones by people wishing to gain because of future growth of prices happened as long ago as 17 century and lead to a serious crisis of the elite of the whole country — the Netherlands.

When the first tulips were grown in the Middle East, the whole world went crazy. Some varieties were more expensive than gold. It is remarkable but before finding its way to Holland, the flower was travelling a lot across Europe. The Dutch only put their eyes on these flowers in the beginning of 17 century.

“Unlearned” gardeners mastered cultivating of tulips by the beginning of 17 century, and already by the second decade the bulb trade became a full-fledged profitable business. Tulips of common varieties did not cost much. But the most expensive varieties were the newest ones, those that were still rare, that’s why gardeners were actively selecting tulips and sellers were selling new products to the wealthy clients.

The circle of people ready to pay for the expensive hobby did significantly enlarge by 1630 but the mass bulb hysteria did not happen yet. The Dutch archives do not support the opinion that “nobility, citizens, farmers, masters, servants and even chimney sweepers and ragmen were busy with tulips”.

The first signs of the real tulipmania started to occur in 1633. During the summer of that year the prices for tulips skyrocketed, and the frenzy followed — for instance, one citizen of Horn gave his house away in exchange for 3 bulbs, another one exchanged his farm for bulbs.

Plant selection breeders fueled the situation, releasing lots of new varieties onto the market. The prices for popular bulbs that were popular earlier consequently fell, as well as the market entry threshold. From this moment on tulipmans began dramatically rise in number.

The frenzy was gaining momentum, and by 1634–1635 future contracts replaced usual business deals. The thing is that in the Netherlands tulips are usually in blossom from April to May, and in the beginning of summer the old bulb lays new ones and dies off. The daughter bulbs are dug out in the middle of the summer and only it is only in the late autumn that they are planted again. To bypass half a year limitations of the Nature, in the autumn of 1634 tulip sellers started to sell bulbs which were in the ground, committing to giving them to the buyer next year. Notary certification of the deal and guaranty by some respectable citizen were used as a form of commitment.

By the summer of 1636 the old system got accompanied by “public” bidding and the number of bulb speculators grew.

As historians note, there is no information as to what the prices for bulbs before the craze of 1636 were. Hence there are various interpretations of events prior to the tulipmania peak of the 17 century. But the very peak has definite time frames — it started during the first week of November 1636 and ended in collapse in the beginning of November 1637. Before the craze the prices for bulbs were growing rather steadily.

During the first week of November 1636 when it was heard about the finale of the battle Battle of Wittstock (which resulted in Dutch losing one of the sales market), the bulb prices fell sevenfold. Aristocrats started selling their best samples, and the offer for rare tulips unexpectedly grew. The links of future contracts turned into unconnected options.

And by 1637 the prices for the contracts fell twentyfold. The buyers refused to pay the specified prices, the sellers insisted. Not everyone managed to solve these issues peacefully.

Contrary to lots of myth, tulipmania did not cause an industrial collapse — notwithstanding civil unrest, the Golden Age of the Netherlands continued. A limited number of people was involved into selling of tulips, that’s why even a total collapse of floriculture wouldn’t have shattered the country’s economy.

But if tulipania wasn’t such a disaster, why was it painted like that? It is possible to guess that offended Christian moralists can be to blame. Some ideas are irrepressible, for instance the one that God does not like sly people and sends plague onto them. The idea that slyness is sinful is still alive. With large wealth a wave of civil unrest comes.

Does this story remind you of anything?

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