Tulipmania
The year is 1634, a strange new flower has been rising in popularity in the infant Dutch Republic, the tulip, unlike any other flower, possessing a rich exceptional colour. Introduced into Europe in the year 1551 A.D by Ferdinand I, Holy Roman Emperor through his ambassador to the Ottoman Empire, like most other exotic products from Asia it rose in popularity. Especially now in the independent Netherlands free from the Spanish at long last; Their golden age has begun. Making a fortune from the East Indies trade where a single voyage could net profits up to even 400%, a new merchant class has arisen, and tulips have increasingly been seen as a status symbol. Botanists have discovered that tulips will even grow in the harsher climate of the Netherlands and tulip breeding has taken off with new varieties being created, so here we find ourselves on the eve of perhaps one of the first ever financial bubbles recorded in history.
The reason why tulip breeding took off was due to a peculiar disease that afflicted the tulip buds called the mosaic virus. The virus caused the tulips to have vivid streaks of colour and vivid patterns forming on the otherwise solidly coloured petals; the virus that only propagated through buds also slowed the plant's propagation and eventually over successive generations of buds made it impossible for the plant to flower leading to the increasing rarity of certain breeds and patterns.
Seeds from a tulip will flower in seven to twelve years and the bloom lasts around a week in the months of April and May. During their dormant phase in September spot trades were made as the bulbs could be uprooted and transported. Before this, the florists signed contracts to buy at the end of the season (effectively futures contracts) Though short selling was banned in 1610 and strengthened in 1621 1630 and 1636 allowing for traders to reject deals if facing a loss though they did pay a penalty of about three per cent.
Now in 1634 with rising popularity and increased demand, speculators enter the market using a sort of formal futures market with a minor 2.5% fee capped at three Dutch guilders, contracts were between the two parties rather than through an exchange.
Tulip bulbs have become the fourth largest export out of the Netherlands and prices have exploded, the entire population, from the lowest to the highest engages in this speculation and bulbs change hands multiple times a day;
This table shows bulb prices in Dutch guilders (fl.) at different years:
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Bulb Price Price on 5th Feb 1637 1642/43
1. English admiral 700 210
2. Admirael Van Eyck 1345 220
3.General Rotgans 805 138
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For a more specific example here is a preserved list of articles and their prices, delivered in exchange for one single root of a breed of tulip called the viceroy:
Two lasts of wheat-448 fl.
Four lasts of rye-558 fl.
Four fat oxen-480 fl.
Eight fat swine-240 fl.
Twelve fat sheep-120 fl.
Two Hogsheads of wine-70 fl.
Four tuns of beer-32 fl.
Two tuns of butter-192 fl.
One thousand lbs. of cheese-120 fl.
A complete bed-100 fl.
A suit of clothes-80 fl.
A silver drinking cup- 60 fl.
Total = 2500 fl.
The most expensive bulb sold was that of the breed Semper Augustus which sold for 2000 guilders. This was at a time when a skilled labourer could expect to make between 150-350 guilders in a year. Many people made a lot of money off these hyperinflated prices, but alas the bubble had to burst and so eventually a bulb that sold at 400 fl. as late as 1707 could be bought for a single guilder in 1739.
1636 was the peak of the bubble. Prices fell rapidly from February 1637 onwards to 10 per cent of pre-collapse prices. The prices continue to fall, we can see in the table the prices in 1739 are a minuscule fraction of old prices. Most prized bulbs sold for only 0.1 florins or so, although the Dutch golden age carried on. While these events might not have been completely disastrous to the economy they certainly had an effect of the psychology of the nation and the public at large. Communities find themselves confused when longstanding notions of value are thrown into doubt. Tulipmania fundamentally changed the equation on how we assessed value.
"Once upon a time there was an emperor with no clothes. For the longest time, no one noticed. There have been many naked emperors since There will doubtless be many more."
Divyam Maskeri
SYBA
Icon Credits:
Ishita Dhanuka
FYBSc
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