what was the dutch tulip bulb market bubble 
the dutch tulip bulb market bubble was one of the most famous market bubbles and crashes of all time also known as tulipmania it occurred in holland during the early to mid 1600s when speculation drove the value of tulip bulbs to extremes the rarest tulip bulbs traded for as much as six times the average person s annual salary at the market s peak the story of tulipmania serves as a parable for the pitfalls of excessive greed and speculation in investing history of the dutch tulip bulb market bubbletulips first appeared in europe in the 16th century arriving via the spice trading routes that lent a sense of exoticism to these imported flowers they looked like no other flower native to the continent 1it is no surprise that tulips became a luxury item destined for the gardens of the affluent it was deemed a proof of bad taste in any man of fortune to be without a collection of tulips according to the library of economics and liberty 2the merchant middle classes of dutch society which didn t exist in such a developed form elsewhere in europe at the time sought to emulate their wealthier neighbors they also demanded tulips they were initially a status item that was purchased for the sole reason that they were expensive but tulips were known to be notoriously fragile and would die without careful cultivation professional cultivators of tulips began to refine techniques to grow and produce the flowers locally in holland in the early 1600s they established a flourishing business sector that has persisted to this day 2according to smithsonian magazine 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 they evolved from a mosaic virus strain this variation was a catalyst for the growing demand for rare broken bulb tulips which ultimately led to the high market price 1tulips sweep hollandtulipmania swept through holland in 1634 the library of economics and liberty writes 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 2a single bulb could be worth as much as 4 000 or even 5 500 florins it s hard to make an accurate estimation of today s value in dollars because 1630s florins were gold coins of uncertain weight and quality but scottish journalist charles mackay does give us some points of reference in his famous 1841 book memoirs of extraordinary popular delusions and the madness of crowds four tuns of beer cost 32 florins that s around 1 008 gallons or 65 kegs of beer a keg of coors light costs around 120 so four tuns of beer 7 800 and 1 florin 244 23 the best of tulips cost upwards of 1 million in today s money with many bulbs trading in the 50 000 to 150 000 range the demand for the tulip trade was so large by 1636 that regular marts for their sale were established on the stock exchange of amsterdam in rotterdam haarlem and other towns 1it was at this time that professional traders stock jobbers got in on the action and everyone appeared to be making money simply by possessing some of these rare bulbs it seemed at the time that the price could only go up that the passion for tulips would last forever people had purchased bulbs on credit hoping to repay their loans when they sold their bulbs for a profit but holders were forced to sell their bulbs at any price and to declare bankruptcy in the process when prices began to drop people began buying tulips with leverage using margined derivatives contracts to buy more than they could afford but confidence was dashed as quickly as the run up began prices began to fall by the end of 1637 and they never recovered 4the bubble burststhe bubble had burst by the end of 1637 buyers announced that they couldn t pay the high prices previously agreed upon for bulbs and the market fell apart it wasn t a devastating occurrence for the nation s economy but it did undermine social expectations 5 the event destroyed relationships built on trust and people s willingness and ability to pay according to smithsonian magazine 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 1real world examples of extreme buyingthe obsession with tulips has captured the public s imagination for generations and it s been the subject of several books including tulip fever a novel by deborah moggach 6 the tulip craze took hold of all levels of dutch society in the 1630s according to popular legend mackay 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 3tulipmania is a model for the general cycle of a financial bubble similar cycles have been observed in the prices of beanie babies baseball cards non fungible tokens nfts and shipping stocks dutch speculators spent incredible amounts of money on bulbs at the time that only produced flowers for a week many companies were formed with the sole purpose of trading tulips but the trade reached its fever pitch in the late 1630s the dutch currency was the guilder in the 1600s this preceded the use of the euro tulips sold for approximately 10 000 guilders at the height of the bubble a price of 10 000 guilders in the 1630s equated roughly to the value of a mansion on the amsterdam grand canal 7did the dutch tulipmania really exist mackay who had never lived in or even visited holland published his classic analysis extraordinary popular delusions and the madness of crowds in 1841 the book documented several prominent asset price bubbles the mississippi scheme and the south sea bubble as well as the tulipmania of the 1600s mackay s short chapter on the subject prompted the popularization of the paradigm for an asset bubble 3there were always a few years of lag between demand pressures and supply because of the timing of tulip cultivation this wasn t an issue under normal conditions because future consumption was contracted for a year or more in advance but growers wouldn t have had an opportunity to increase production in response to price when the 1630s increase in prices occurred so rapidly and after bulbs already were planted for the year 3earl thompson an economist has determined that prices rose simply because suppliers couldn t satisfy all the demand due to this sort of production lag and the fact that growers entered into legal contracts to sell their tulips at a later date similar to futures contracts these contracts were rigorously enforced by the dutch government actual sales of new tulip bulbs remained at ordinary levels throughout the period 8using data about the specific payoffs present in the contracts thompson argued that tulip bulb contract prices hewed closely to what a rational economic model would dictate tulip contract prices before during and after the tulipmania appear to provide a remarkable illustration of market efficiency indeed tulip production had risen to match the earlier demand by 1638 the earlier demand had waned by then creating an oversupply in the market and further depressing prices 8economist earl thompson has studied tulipmania and has concluded that the mania was a rational response to demands arising from contractual obligations 8anne goldgar historian at king s college london has also written extensively about tulipmania and agrees with thompson casting doubt on its bubbleness goldgar argues that tulipmania may not have constituted an economic or speculative bubble but it was nonetheless traumatic to the dutch for other reasons even though the financial crisis affected very few the shock of tulipmania was considerable goldgar writes 9goldgar goes on to argue that the tulip bubble was not at all a mania although a few people did pay very high prices for a few very rare bulbs and some lost a lot of money as well the story has instead been incorporated into the public discourse as a moral lesson that greed is bad and chasing prices can be dangerous 10