It was the 17th century and the recently formed Dutch Republic had entered its Golden Age. Resources once used to finance the Netherland’s fight for independence from Spain were now being directed to the commercial arena. The Dutch East India Company (VOC) had been chartered to expand trade to the East Indies and establish colonies along the entire coast of the New World. The port of Amsterdam became one of the richest cities in western Europe and the Dutch Republic a global economic superpower.
Speculation in the newly conceived securities offered by the VOC offered exceptional returns. A single voyage could yield a profit of 400%. The combination of financial success and peacetime prosperity lulled investors into the misapprehension that the good times would never end. Whether as a fatalistic response to the ever imminent and very real threat of death from the recurrent plagues of the 17th century or the misconception that their investments were a “sure thing,” the Dutch began to take ever greater risks.
Opinions differ on how the tulip was first imported into western Europe from the Ottoman Empire; however, it is generally accepted that the European general public first took notice when Swiss naturalist Conrad Gesner described it in his
Historia Plantarum in 1551. By 1559, the small bulb had gained such popularity in Germany and the Netherlands that the well-to-do were having them delivered from Constantinople.
The tulip seems to have lived a modest life until the 1620s. However, as
the Dutch Republic’s stable monetary policy attracted coins and bullion from around the world, and laws were introduced that allowed more coins to be minted than the market required, the ready supply of money combined with the general optimism of a Republic that had seen a quick rise to world economic power created a new paradigm and an atmosphere ripe for indulgence and casino capitalism. THE PHYTOTOMY OF A BUBBLE
The Republic’s prosperity benefitted not only the privileged elite – it also gave rise to new wealth among an increasingly vibrant middle class. As society became more prosperous, the Dutch began to collect artwork, Chinese porcelain and, in what might be considered an absurdity to some, tulip bulbs. Early modern capitalism developed rapidly and prices were set according to supply and demand. The new bourgeois was caught up in the tulip’s increasing craze. Like portraiture, owning a tulip became a symbol of status. However, whereas portrait prices were relatively modest given the number of available artists, the very horticultural nature of the tulip bulb led investors to believe demand would always exceed supply.
It can take up to 12 years to cultivate a mother bulb and another one to three years for its offsets to flower. In addition, the most prized varieties, and therefore the most expensive, were the result of an extremely fickle virus. By 1634, tulip trading had developed into a rudimentary futures market.
Euphoria began to set in. At its peak in 1637, the price of a particularly coveted tulip variety was equivalent to the price of a house located on one of Amsterdam’s canals. Traders became speculators, sometimes flipping these bulbous derivatives up to ten times. As the market became more speculative, interest rates dropped sharply. In the last three months of its frenzied climb, quantities of cheaper bulbs might see
a twenty-fold increase in price.
However, as cultivation became more systematic, the bulbs finally surpassed demand and traders began to worry that this emperor of flowers wasn’t wearing any clothes. The first warning of an imminent crash came on 3 February 1637 when members of a college tested market confidence by putting bulk quantities of common tulip bulbs up for auction. In three successive sales, only one buyer placed a bid. And with each bid, the price dropped successively by
15%, 25% and finally 35% below the market price. Within a few days, trading came to a complete halt.
In contrast to the global financial crisis, however, this was a futures market and the fallout on the Dutch economy was mild and contained. For one, trading was limited to five or six towns located in the province of Holland, and the total number of active participants in the tulip business was comparatively small. Buyers also had an easy out. With the exception of about two weeks a year, the bulbs lay dormant and were only paid for when they were dug up in the summer. Most tulip buyers simply reneged on their contracts.
As Anne Goldgar, author of
told PROJECT M: “There are a lot of popular misconceptions about Tulipmania. For instance, that it had a major negative impact on the Dutch economy or that a lot of people went bankrupt. In fact, most of the people who bought tulips did so because they liked them and could afford them. They were a valued object in the 17th century, just as truffles are today.” Tulipmania: Money, honour, and knowledge in the Dutch Golden Age
In a poignant quirk of fate, the Dutch underwent a severe famine between 1944 and 1945 in the same region that had indulged in Tulipmania 300 years earlier. Food became so scarce that, instead of vegetables and fruit, people living in the German-occupied Netherlands were left to sugar beets … and tulip bulbs.