Economic Crash — Tulip Mania

The Dutch tulip mania of the 1600s is often cited as an example of greed, excess, and financial mania, with the prices driven by the fear of missing out and crowd psychology. Tulips were imported into Europe in the 16th century by the Dutch East India Company, arriving via the spice trading routes that lent a sense of exoticism to these imported flowers that looked like no other flower native to the continent. Tulips became a luxury item in the gardens of the affluent. They were a status item, purchased solely for the reason that they were rare and expensive.

Tulips are also notoriously fragile.  They die without careful cultivation. But in the Dutch province of Holland (not all of the Netherlands is in Holland but all of Holland is in the Netherlands!), professional cultivators of tulips began to refine techniques to grow and produce these flowers, creating a flourishing business sector that has persisted to this day.  The Dutch learned that tulips could grow from seeds or buds that grew on the mother bulb. A bulb that grew from seed would take seven to 12 years before flowering, but a bulb itself could flower the very next year. So-called broken bulbs were a type of tulip with a striped, multicolored pattern rather than a single solid color that evolved from a mosaic virus strain. This variation was a catalyst for growing demand for rare, “broken bulb” tulips, which ultimately led to the high market price.

In 1634, a consumer mania for broken bulb tulips swept through Holland. The hysteria to possess unique and rare tulip bulbs was so great that the ordinary industry of the country was neglected, and the whole population engaged in growing and marketing tulip bulbs.  A single bulb could be sold for upwards of $1 million in today’s money and even common bulbs were trading in the $50,000–$150,000 range. By 1636, the demand for the tulip trade was so large that regular markets for their sale were established on the stock exchanges of Amsterdam, Rotterdam, Haarlem, and other towns.  Professional traders began making money simply by brokering trades in rare bulbs they never actually possessed (ie they would arrange the sale of third parties and take a cut) It seemed at the time that the price could only go up, that “the passion for tulips would last forever.”  People purchased bulbs on credit, hoping to repay their loans when they sold their bulbs for a profit. But once prices started to drop, holders were forced to sell their bulbs at any price and to declare bankruptcy in the process.

By the end of 1637, the bubble had burst. Buyers announced that they could not pay the high price previously agreed upon for bulbs, and the market fell apart. The event destroyed relationships built on trust and people’s willingness and ability to pay.