Tulip mania

Tulip mania (Dutch: tulpenmanie) was a period during the Dutch Golden Age when contract prices for some bulbs of the recently introduced and fashionable tulip reached extraordinarily high levels. The major acceleration started in 1634 and then dramatically collapsed in February 1637. It is generally considered to have been the first recorded speculative bubble or asset bubble in history.^[2] In many ways, the tulip mania was more of a then-unknown socio-economic phenomenon than a significant economic crisis. It had no critical influence on the prosperity of the Dutch Republic, which was one of the world's leading economic and financial powers in the 17th century, with the highest per capita income in the world from about 1600 to about 1720.^[3]^[4] The term tulip mania is now often used metaphorically to refer to any large economic bubble when asset prices deviate from intrinsic values.^[5]^[6]

Forward markets appeared in the Dutch Republic during the 17th century. Among the most notable was one centred on the tulip market.^[7]^[8] At the peak of tulip mania, in February 1637, some single tulip bulbs sold for more than 10 times the annual income of a skilled artisan. Research is difficult because of the limited economic data from the 1630s, much of which come from biased and speculative sources.^[9]^[10] Some modern economists have proposed rational explanations, rather than a speculative mania, for the rise and fall in prices. For example, other flowers, such as the hyacinth, also had high initial prices at the time of their introduction, which then fell as the plants were propagated. The high prices may also have been driven by expectations of a parliamentary decree that contracts could be voided for a small cost, thus lowering the risk to buyers.

The 1637 event gained popular attention in 1841 with the publication of the book Extraordinary Popular Delusions and the Madness of Crowds, written by Scottish journalist Charles Mackay, who wrote that at one point 5 hectares (12 acres) of land were offered for a Semper Augustus bulb.^[11] Mackay claimed that many investors were ruined by the fall in prices, and Dutch commerce suffered a severe shock. Although Mackay's book is a classic, his account is contested. Many modern scholars believe that the mania was not as destructive as he described.^[12]^[13]^[14]

^ Nusteling 1985, pp. 114, 252, 254, 258
^ Shiller 2005, p. 85 More extensive discussion of status as the earliest bubble on pp. 247–48.
^ Kaletsky, Anatole: Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis. (PublicAffairs, 2010), pp. 109–10. Anatole Kaletsky: "The bursting of the tulip bubble in 1637 did not end Dutch economic hegemony. Far from it. Tulipmania was followed by a century of Dutch leadership in almost every branch of global commerce, finance, and manufacturing."
^ Gieseking, Jen Jack; Mangold, William; et al.: The People, Place, and Space Reader. (Routledge, 2014, ISBN 978-0-415-66497-4), p. 151. As Witold Rybczynski (1987) notes, the 17th-century Dutch Republic "had few natural resources—no mines, no forests—and what little land there was needed constant protection from the sea. But this "low" country surprisingly quickly established itself as a major power. In a short time it became the most advanced shipbuilding nation in the world and developed large naval, fishing, and merchant fleets.
^ French 2006, p. 3
^ Fowler, Mark; Felton, Bruce (August 1, 2004). The Best, Worst, & Most Unusual: Noteworthy Achievements, Events, Feats & Blunders of Every Conceivable Kind. Galahad. ISBN 978-0-88365-861-1.
^ Chew, Donald H. (2008). Corporate Risk Management. Columbia University Press. ISBN 978-0-231-14362-2.
^ Pavaskar, Madhoo (2016). Commodity Derivatives Trading: Theory and Regulation. Notion Press. ISBN 978-1-945926-22-8.
^ Cite error: The named reference Kuper was invoked but never defined (see the help page).
^ A pamphlet about the Dutch tulipomania Archived May 27, 2012, at archive.today Wageningen Digital Library, July 14, 2006. Retrieved on August 13, 2008.
^ "The Tulipomania", Chapter 3, in Mackay 1841
^ Goldgar, Anne (February 12, 2018), "Tulip mania: the classic story of a Dutch financial bubble is mostly wrong", The Conversation, Boston, MA, archived from the original on February 7, 2021, retrieved February 13, 2018
^ Thompson 2007, p. 99
^ Kindleberger & Aliber 2005, p. 115

[Nus-1] Nusteling 1985, pp. 114, 252, 254, 258

[2] Shiller 2005, p. 85 More extensive discussion of status as the earliest bubble on pp. 247–48.

[3] Kaletsky, Anatole: Capitalism 4.0: The Birth of a New Economy in the Aftermath of Crisis. (PublicAffairs, 2010), pp. 109–10. Anatole Kaletsky: "The bursting of the tulip bubble in 1637 did not end Dutch economic hegemony. Far from it. Tulipmania was followed by a century of Dutch leadership in almost every branch of global commerce, finance, and manufacturing."

[4] Gieseking, Jen Jack; Mangold, William; et al.: The People, Place, and Space Reader. (Routledge, 2014, ISBN 978-0-415-66497-4), p. 151. As Witold Rybczynski (1987) notes, the 17th-century Dutch Republic "had few natural resources—no mines, no forests—and what little land there was needed constant protection from the sea. But this "low" country surprisingly quickly established itself as a major power. In a short time it became the most advanced shipbuilding nation in the world and developed large naval, fishing, and merchant fleets.

[French_2006_3-5] French 2006, p. 3

[6] Fowler, Mark; Felton, Bruce (August 1, 2004). The Best, Worst, & Most Unusual: Noteworthy Achievements, Events, Feats & Blunders of Every Conceivable Kind. Galahad. ISBN 978-0-88365-861-1.

[7] Chew, Donald H. (2008). Corporate Risk Management. Columbia University Press. ISBN 978-0-231-14362-2.

[8] Pavaskar, Madhoo (2016). Commodity Derivatives Trading: Theory and Regulation. Notion Press. ISBN 978-1-945926-22-8.

[Kuper-9] Cite error: The named reference Kuper was invoked but never defined (see the help page).

[10] A pamphlet about the Dutch tulipomania Archived May 27, 2012, at archive.today Wageningen Digital Library, July 14, 2006. Retrieved on August 13, 2008.

[Chap3-11] "The Tulipomania", Chapter 3, in Mackay 1841

[12] Goldgar, Anne (February 12, 2018), "Tulip mania: the classic story of a Dutch financial bubble is mostly wrong", The Conversation, Boston, MA, archived from the original on February 7, 2021, retrieved February 13, 2018

[Thompson200799-13] Thompson 2007, p. 99

[Kindleberger_2005_115-14] Kindleberger & Aliber 2005, p. 115

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