FC93A: The "Tulipmania" of the 1630s

FC93A
There are few things more resilient than greed, as seen by the succession of “boom and bust” speculative market in the modern era over such things as websites, real estate, and even buying insurance policies at cut rate to cash in later at full value.  The grand daddy of all these speculative markets took place in Holland in the 1630s and focused on, of all things, tulips.

The tulip seems to have originated in the harsh wind-blown environment of the Himalayas.  It was originally a short, stubby flower, but was admired for its beauty and as a symbol of the tenacity of life. Tulips spread westward and became especially popular among the Arabs who cultivated gardens of them. Their popularity spread to the Turks, and the Ottoman sultan Suleiman the Magnificent even had a tattoo of a tulip to serve as a protective talisman.

The tulip first arrived in Antwerp in 1562 by way of trade with the Turks.  By this time, the influx of money from the Americas and expanding trade routes were pushing rich Europeans to look for new ways to spend and invest their money.  One area was botany and gardening, thanks to the scientific revolution and the circulation of scientific knowledge by the printing press. This and two other factors made the tulip seem like the perfect thing in which to invest.  One was that it was difficult for many Dutch artisans to make a profit, so they were also looking for another source of income requiring little capital investment.  The other factor was that tulips reproduce slowly, thus creating a limited supply that could be sold for a high profit.  All these things made tulips lucrative to grow and sell.

At first, the tulip trade grew reasonably, as demand for this new sensation grew and the supply remained constant, thus driving prices up. This would draw more people into the speculative market, further increasing demand, driving prices up more, and so on. However, what started as a reasonable trade in tulips soon turned into a frenzy of buying and selling, with each new buyer expecting to be able to sell at a higher price.  People were paying outrageous prices, such as plots of land and, a whole trade ship, and, in one case, an entire mansion, for a single bulb.  They were also borrowing heavily and going into debt to buy tulip bulbs, counting on future profits from other people caught up in the same frenzy.  

Unfortunately, there was a major problem with tulip bulbs, because the most beautiful designs in tulips tend to be recessive traits, and there was no guarantee that a tulip bulb’s offspring would have the same traits as its parent.  Eventually, people, realizing this and seeing that tulips were extremely over-priced, wanted to sell their bulbs.  Unfortunately, there were no buyers, so prices dropped rapidly. This led to panic selling, since so many people were in debt for tulip bulbs they hoped to sell, causing prices to drop more, leading to more panic selling, and so on.  By the end of 1637, the tulip bubble had burst and “tulipmania had collapsed as suddenly as it had bloomed.

Even though the speculative bubble popped, tulips still retained much of their value.  Louis XIV would buy 2,000,000 tulips a year from the Dutch for his palace at Versailles.  They continue to be a major export for Holland (the Dutch Republic).