Tulip Mania

I hope everyone has heard about the “Tulip mania” which occurred between 1585 to 1650. It is also remembered as the world’s first financial crisis. I recall it as a “speculative karma”.

Between 1585 and 1650, Amsterdam became the chief commercial emporium, the center of the trade of the northwestern part of Europe, owing to the growing commercial activity in newly discovered America. The tulip as a cultivated flower was imported into western Europe from Turkey and it is first mentioned around 1554. The scarcity of tulips and their beautiful colors made them a must for members of the upper classes of society. During the build-up of the tulip market, the participants were not making money through the actual process of production. Tulips acted as the medium of speculation and their price determined the wealth of participants in the tulip business. It is not clear whether the build-up attracted new investment or new investment fueled the build-up, or both. What is known is that as the build-up continued, more and more people were roped into investing their hard-won earnings. The price of the tulip lost all correlation to its comparative value with other goods or services.

What we now call the “tulip mania” of the seventeenth century was the “sure thing” investment during the period from the mid-1500s to 1636. Before its devastating end in 1637, those who bought tulips rarely lost money. People became too confident that this “sure thing” would always make them money and, at the period’s peak, the participants mortgaged their houses and businesses to trade tulips. The craze was so overwhelming that some tulip bulbs of a rare variety sold for the equivalent of a few tens of thousands of dollars. Before the crash, any suggestion that the price of tulips was irrational was dismissed by all the participants.

The conditions now generally associated with the first period of a boom were all present: an increasing currency, a new economy with novel colonial possibilities, and an increasingly prosperous country together had created the optimistic atmosphere in which booms are said to grow.

The crisis came unexpectedly. On February 4, 1637, the possibility of the tulips becoming definitely unsalable was mentioned for the first time. From then until the end of May 1637, all attempts at coordination among florists, bulb growers, and the Netherlands were met with failure. Bulbs worth tens of thousands of U.S.dollars (in present value)in early 1637 became valueless a few months later. This remarkable event is often discussed by present-day commentators, and parallels are drawn with modern speculation mania.

The question is asked, Do the tulip market’s build-up and its subsequent crash have any relevance for today’s markets?
Only now there are a lot of tulips and they come with ticker symbols. :D