The Dutch Tulip Bubble

In Flora’s Wagon of Fools by Hendrik Gerritsz Pot, the goddess of flowers leads the weavers of Haarlem toward the rough seas that will destroy them (Credit: Hendrik Gerritsz Pot)

In Flora’s Wagon of Fools by Hendrik Gerritsz Pot, the goddess of flowers leads the weavers of Haarlem toward the rough seas that will destroy them (Credit: Hendrik Gerritsz Pot)

Anyone who follows the stock market or survived 2008 knows what a bubble is.  What may surprising is the first one was not in housing or gold.  What was this amazing commodity?  Tulips.  I can hear your disbelief through the computer screen.  Tulips?  Those things my mom plants around the sidewalk to the front porch?  Yes.  Mike Dash in his book Tulipomania: The Story of the World’s Most Coveted Flower and the Extraordinary Passions It Aroused said one bulb of the variety Semper Augustus was so valuable “It was enough to feed, clothe and house a whole Dutch family for half a lifetime, or sufficient to purchase one of the grandest homes on the most fashionable canal in Amsterdam for cash, complete with a coach house and an 80-ft (25-m) garden – and this at a time when homes in that city were as expensive as property anywhere in the world.”  How did this happen?  Well, as with most things, it’s a long story.

Tulips were originally from the Pamir and Tien Shan mountain ranges in central Asia.  From there they made their way to the gardens of the Ottoman Empire in Constantinople.  Botanist Carolus Clusius brought them to his garden at the University of Leiden to study them for medicinal purposes.  Clusius noticed that some tulips “broke”, in that they started out as a solid color but then suddenly began producing blooms which were multicolored.  In the course of his research, his neighbors noticed the beautiful flowers and stole some.  Nice neighbors.  In the hopes of quick cash, the nefarious neighbors sold the tulips on the open market.  Botanists began competing with one another to breed the most beautiful “broken” or multicolored tulip.  These cultivars, as they were called, were highly prized and traded amongst each other.  This network of botanists soon developed into the trade network as tulips quickly became a status symbol amongst the rich of Holland.  

Over the next few years tulips became the most valuable commodity and were openly traded.  Bulbs would change hands over ten times a day.  A bulb for a Viceroy tulip in 1634 could command 2500 florins a value roughly equivalent to $1,250 in current dollars.  The Semper Augustus as mentioned above could get about twice that.  A good trader could earn up to 60,000 florins in a month— approximately $61,710 adjusted to current dollars.  Tulip bulbs were used as money and could be traded for all kinds of goods and services.  They were traded in the back of taverns and at one point were considered too valuable to even plant.  The unplanted bulbs were proudly displayed by wealthy owners.  They looked very much like an onion, and in fact one sailor unknowingly ate one thinking it was an onion.  It was a $1,000 meal.

An anonymous watercolour from the 17th Century shows the Semper Augustus, the most prized and expensive variety in the Dutch tulip mania Photo Credit: Wikipedia

An anonymous watercolour from the 17th Century shows the Semper Augustus, the most prized and expensive variety in the Dutch tulip mania Photo Credit: Wikipedia

Then the bubble burst.  In 1637, a trader in Haarlem did not show up to pay for his bulbs.  This started a panic and the price of tulips hit rock bottom.  Within days, bulbs lost their value and were only worth pennies on the dollar.  Many people lost their fortune in the catastrophe and went into deep debt.  The effects were long reaching as these debts went through the court system for years.  Even those who had escaped the worst of the crash were affected by the economic depression that followed.  One good thing followed the crash, the Dutch were extremely cautious about speculative investments in future.

ER

Sources available on request