The Dutch Tulip Mania, one of the most interesting eras of economic history, taking place in the 17th century Netherlands, is still seen as one of the most unusual and also irrational behaviors that the world’s financial markets have ever seen. Starting to take place in the early 1630s, it’s considered to be probably the first recorded speculative bubble in history with the intense rise in the value of tulip bulbs before it’s almost theatrical collapse in 1637.
To get a bit of a historical background as to how this all lead up to the position it did, we have to look at the way tulips came to be. The flowers first came to europe in late 16th century from the ambassador of the Holy Roman Emperor Ferdinand I to the Ottoman Empire and then to Vienna in 1554. From there, tulips spread to europe almost like a wildfire, becoming a luxury item and a symbol of status and prestige. It became desirable within the wealthy, making them want to desperately own the most unique, exquisite or the prettiest – to that period’s standards- and got especially well-liked in the Netherlands, eventually leading up to the craze.
The way this tulip mania came to be could be attributed to something known as a “futures contract,” where the engagers take part in speculative trading through the purchase of the right to acquire bulbs at a later time. The tulips they received would almost always be way above the actual prices that represented the value of the tulips. Through the advancement of the futures market, everyone that could be involved in the trade, including nobles and citizens alike, as well as common merchants, started joining in on the economic mania in search of any profit they could get their hands on. There were periods where a single bulb could be bought for ten times more than ten times the annual income of a known and skilled craftsman.
The main symbol used for the craze both then and nowadays became the Semper Augustus (name derived from Latin and meaning “forever exalted”), the most expensive flower that was on the market with beautifully curling red and white stripes. The gorgeous looks of it came from a viral disease, which made it incredibly short-lived and weaker amongst the other types of the species. Despite it’s naturally occurring weakness, a single bulb of the Semper Augustus was, at one point, sold at a price higher than some of the more luxurious and desirable houses of that time.
And the way the Dutch tulip mania ended up, inevitably, as a cautionary tale of unattended stock speculations was through it’s downfall taking place in 1637. The stocks and prices slowly became impossible to keep up with after people traded acres and acres of land for vast sums of money for a single tulip bulb. Everyone, starting with merchants who became unable to find barely any customers to sell tulips to and then the novels and citizens, started noticing that the market was unsustainable and couldn’t keep going for even a year beyond the current situation. The financial bubble eventually burst and came to an end once and for all, probably with people realizing the amounts of money, land, and property they had given up for tulip bulbs that eventually died and how meaningless it was. The investors, of course, faced what could be called a shattering financial ruin after everyone stopped buying and trading the tulips that were the main craze just a few weeks prior, and with that, the Dutch tulip mania came to an absurd end.
And to this day, the whole endeavor remains an interesting, irrational, and admittedly kind of funny yet still important historical lesson, displaying just how radical market and trade dynamics put together with human behavior can get. It serves to show just how brittle speculative bubbles can become through the manifestation of tulips becoming such a financial disaster where they started out as a liked but typical flower from the Ottoman Empire.
