First Market Bubble – The Dutch Tulip Bulb Market

The Dutch tulip bulb market bubble, also known as ‘tulipmania’ was one of the most famous market bubbles and crashes of all time. It occurred in Holland during the early to mid-1600s when speculation drove the value of tulip bulbs to extremes. At the height of the market, the rarest tulip bulbs traded for as much as six times the average person’s annual salary.  

1. The Dutch Tulip Bulb Market Bubble was one of the most famous asset bubbles and crashes of all time.
2. At the height of the bubble, tulips sold for approximately 10,000 guilders, equal to the value of a mansion on the Amsterdam Grand Canal.
3. Tulips were introduced to Holland in 1593 with the bubble occurring primarily from 1634 to 1637.
4. Recent scholarship has questioned the extent of the tulipmania, suggesting it may have been exaggerated as a parable of greed and excess.
5. Today, the tulipmania serves as a parable for the pitfalls that excessive greed and speculation can lead to.

In 1634, tulipmania swept through Holland. “The rage among the Dutch to possess [tulip bulbs] was so great that the ordinary industry of the country was neglected, and the population, even to its lowest dregs, embarked in the tulip trade.” A single bulb could be worth as much as 4,000 or even 5,500 florins – since the 1630’s florins were gold coins of uncertain weight and quality it is hard to make an accurate estimation of today’s value in dollars, but Mackay does give us some points of reference: among other things, 4 tuns of beer cost 32 florins. That’s around 1,008 gallons of beer – or 65 kegs of beer. A keg of Coors Light costs around $90, and so 4 tuns of beer ≈ $4,850 and 1 florin ≈ $150. That means that the best of tulips cost upwards of $750,000 in today’s money (but with many bulbs trading in the $50,000 – $150,000 range). By 1636, the demand for the tulip trade was so large that regular marts for their sale were established on the Stock Exchange of Amsterdam, in Rotterdam, Harlaem, and other towns.

The Bubble Bursts

By Febuary of 1637, the bubble had burst. Buyers announced they could not pay the high price previously agreed upon for bulbs and the market fell apart. While it was not a devastating occurrence for the nation’s economy, it did undermine social expectations. The event destroyed relationships built on trust and people’s willingness and ability to pay.

According to Smithsonian.com, Dutch Calvinists painted an exaggerated scene of economic ruin because they worried that the tulip-driven consumerism boom would lead to societal decay. They insisted that such great wealth was ungodly and the belief remains to this day.

Real-World Examples of Extreme Buying

The obsession with tulips—referred to as “Tulipmania“—has captured the public’s imagination for generations and has been the subject of several books including a novel called Tulip Fever by Deborah Moggach. According to popular legend, the tulip craze took hold of all levels of Dutch society in the 1630s. A Scottish journalist Charles Mackay, in his famous 1841 book Memoirs of Extraordinary Popular Delusions and the Madness of Crowds, wrote that “the wealthiest merchants to the poorest chimney sweeps jumped into the tulip fray, buying bulbs at high prices and selling them for even more.”

Dutch speculators spent incredible amounts of money on these bulbs, but they only produced flowers for a week—many companies formed with the sole purpose of trading tulips. However, the trade reached its fever pitch in the late 1630s.

In the 1600s the Dutch currency was the guilder, which preceded the use of the euro. According to Focus-Economics.com, at the height of the bubble, tulips sold for approximately 10,000 guilders. In the 1630s a price of 10,000 guilders equated roughly the value of a mansion on the Amsterdam Grand Canal.

Source: Investopedia