Tulip mania 203464 226184546 2008-07-17T05:53:50Z JayHenry 1021929 /* Modern views */ add cite for Thompson quote [[Image:Tulipomania.jpg|thumb|A tulip bulb, known as "the Viceroy", displayed in a 1637 Dutch catalog: a small bulb cost 3,000 [[Dutch guilder|guilders]], a large bulb 4,200. A skilled craftsman at the time earned about 150 guilders a year.]] '''Tulip mania''' (alternatively '''tulipomania'''; [[Dutch language|Dutch]] names include ''tulpenmanie, tulpomanie, tulpenwoede, tulpengekte, bollengekte'') was a period in the [[history of the Netherlands]] during which demand for [[tulip]] [[bulb]]s reached such a peak that enormous prices were charged for a single bulb. The peak of tulip mania, which occurred in 1636–37, is generally considered the first significant [[economic bubble|speculative bubble]].<ref>{{Harvnb|Shiller|2005|p=85}} More extensive discussion of status as the earliest bubble on p. 247–48.</ref> Because of this, the term '''tulip mania''' is also used [[metaphor]]ically to refer to any large [[economic bubble]].<ref>{{Harvnb|French|2006|p=3}}</ref> The event is remembered in part because of its extended discussion in the book ''[[Extraordinary Popular Delusions and the Madness of Crowds]]'', written by popular British journalist [[Charles Mackay]] in 1843, more than two centuries after the event. According to Mackay, at one point a speculator paid as much as 12 acres of land for a single bulb.<ref name=Chap3>"The Tulipomania", Chapter 3, in {{Harvnb|Mackay|1841}}.</ref> Though Mackay's book is regarded as a classic piece of popular journalism and is still read today, modern scholars believe the bubble was not as significant as Mackay suggested, or even that no economically meaningful bubble occurred. Mackay's account also omitted some significant factors, such as the epidemic of [[bubonic plague]] from which the Netherlands suffered during 1636-37, and severe setbacks in the [[Thirty Years War]]. ==History== [[Image:Pamphlet dutch tulipomania 1637.jpg|thumb|260px|Pamphlet from the Dutch tulipomania, printed in [[1637]]]] [[Image:Triumph Tulip Tulipa 'Prinses Irene' Single 2859px.jpg|thumb|260px|A flecked tulip, with a flame-like pattern on the petals, would have fetched a high price]] The [[tulip]], introduced to [[Europe]] in the middle of the 16th century from the [[Ottoman Empire]], experienced a strong growth in popularity in the [[Dutch Republic|United Provinces]] (now the [[Netherlands]]).<ref>{{Harvnb|Garber|1989|p=537}}</ref> Tulip cultivation in the United Provinces are popularly thought to have started in 1593, when [[Charles de L'Ecluse]] first bred tulips able to tolerate the harsher conditions of the Low Countries from bulbs sent to him from [[Turkey]] by [[Ogier de Busbecq]].<ref>{{Harvnb|Goldgar|2007|p=32}}</ref> Although it's not firmly established that this is when tulips were first introduced, it was shortly thereafter that they began to grown in popularity.<ref>{{Harvnb|Goldgar|2007|p=33}}</ref> The flower rapidly became a coveted luxury item and a [[status symbol]]. Special breeds were given exotic names or named after Dutch naval admirals. The Dutch, who developed many of the techniques of modern finance, created a market for [[Durable good|durable]] tulip bulbs.<ref>{{Harvnb|Garber|1989|p=537}}</ref> The most spectacular and highly sought-after tulip bulbs would grow flowers with vivid colors, lines, and flames on the petals as a result of being infected with a tulip-specific [[plant virus|virus]] known as the "Tulip Breaking potyvirus", a type of [[mosaic virus]].<ref>Phillips, S. "[http://image.fs.uidaho.edu/vide/descr849.htm Tulip breaking potyvirus]", in Brunt, A.A., Crabtree, K., Dallwitz, M.J., Gibbs, A.J., Watson, L. and Zurcher, E.J. (eds.) (1996 onwards). ''Plant Viruses Online: Descriptions and Lists from the VIDE Database.'' Version: 20th August 1996.</ref><ref>{{Harvnb|Garber|1989|p=542}}</ref> Tulips, which grow from bulbs, propagate through both seeds and buds. Seeds from a tulip will form a flowering bulb after 7–12 years. When a bulb grows into the flower, the original bulb will disappear, but a clone bulb forms in its place, as do several buds. Properly cultivated, these buds will become bulbs of their own. The mosaic virus spreads only through buds, not seeds, and so cultivating the most appealing varieties takes years and years. Tulips bloom in April and May for only about a week, and the secondary buds appear shortly thereafter. From June to September bulbs can be uprooted and moved about, and thus actual purchases (the [[spot market]]) occurred during these months. During the rest of the year, traders signed contracts before a notary to purchase tulips at the end of the season (effectively [[futures contract]]s).<ref>{{Harvnb|Garber|1989|p=541–42}}</ref> As the flowers grew in popularity, professional growers paid higher and higher prices for bulbs with the virus. By 1634, spurred in part by demand from the French, speculators began to enter the market.<ref>{{Harvnb|Garber|1989|p=543}}</ref> In 1636 the Dutch created formal [[Futures exchange|futures market]] where contracts to buy bulbs at the end of the season were bought and sold. Throughout 1636 the price of rare bulbs climbed ever higher. In November of 1636 the prices of common bulbs, without the valuable mosaic virus, also began to rise in value. Abruptly in February of 1637, however, the prices collapsed and trading in tulips ground to a standstill.<ref>{{Harvnb|Garber|1989|p=543–44}}</ref> == Mackay's ''Madness of Crowds'' == [[Image:Semper Augustus Tulip 17th century.jpg|thumb|left|Anonymous 17th-century [[watercolor]] of the Semper Augustus, the most famous bulb, which sold for a record price.]] The modern discussion of Tulip Mania began with the book ''[[Extraordinary Popular Delusions and the Madness of Crowds]]'', published in 1841 by the Scottish journalist [[Charles Mackay]]. The thesis of Mackay's work was that crowds of people often behave irrationally, and Tulip Mania was, along with the [[South Sea Bubble]] and [[Mississippi Company Bubble]], one of his prime examples. Mackay's account was largely sourced to a 1797 work by [[Johann Beckmann]] titled ''A History of Inventions, Discoveries, and Origins''. In fact, Beckmann's account, and thus Mackay's by association, was primarily sourced to three anonymous pamphlets published in 1637 with an anti-speculative agenda.<ref>{{Harvnb|Garber|1990|p=37}}</ref> Mackay's vivid book was extremely popular among generations of economists and stock-market participants. Thus Mackay's popular, but flawed, description of Tulip Mania as a [[speculative bubble]] remains prominent, even though since the 1980s economists have debunked many aspects of his account.<ref>{{Harvnb|Garber|1990|p=37}}</ref> According to Mackay, the growing popularity of tulips in the early 1600s caught the attention of the entire nation: "the population, even to its lowest dregs, embarked in the tulip trade".<ref name=Chap3/> By 1635, a sale of 40 bulbs for 100,000 florins (also known as [[Dutch guilder]]s) was recorded. By way of comparison, a ton of butter cost around 100 florins, a skilled laborer might earn 150 florins a year, and "eight fat swine" cost 240 florins.<ref name=Chap3/> {| class="infobox" style="float:right; clear:right; margin-left:1em; margin-right:0em; font-size:90%; width:150pt;" !style="background:#DCDCDC;" colspan="2"|Goods exchanged for a<br />single root of the ''Viceroy''<ref name=Mac3/> |- !style="background:#000000;" colspan="2"| |- |width="110pt"|Two lasts of wheat |width="40pt"|448[[Dutch guilder|ƒ]] |- |width="110pt"|Four lasts of rye |width="40pt"|558[[Dutch guilder|ƒ]] |- |width="110pt"|Four fat oxen |width="40pt"|480[[Dutch guilder|ƒ]] |- |width="110pt"|Eight fat swine |width="40pt"| 240[[Dutch guilder|ƒ]] |- |width="110pt"|Twelve fat sheep |width="40pt"|120[[Dutch guilder|ƒ]] |- |width="110pt"|Two hogsheads of wine |width="40pt"|70[[Dutch guilder|ƒ]] |- |width="110pt"|Four tuns of beer |width="40pt"|32[[Dutch guilder|ƒ]] |- |width="110pt"|Two tons of butter |width="40pt"|192[[Dutch guilder|ƒ]] |- |width="110pt"|1,000 lbs. of cheese |width="40pt"|120[[Dutch guilder|ƒ]] |- |width="110pt"|A complete bed |width="40pt"|100[[Dutch guilder|ƒ]] |- |width="110pt"|A suit of clothes |width="40pt"|80[[Dutch guilder|ƒ]] |- |width="110pt"|A silver drinking cup |width="40pt"|60[[Dutch guilder|ƒ]] |} By 1636, tulips were traded on the [[stock exchange]]s of numerous Dutch towns and cities. This encouraged trading in tulips by all members of society; Mackay recounted people selling or trading their other possessions in order to speculate in the tulip market, such as a single bulb of the ''Semper Augustus'' that was purchased in exchange for 12 acres of land, or a single bulb of the ''Viceroy'' which was purchased for a basket of goods (''shown at right'') worth 2,500 florins.<ref name=Mac3>This basket of goods in Chapter 3 of {{Harvnb|Mackay|1841}} is also interesting as a [[commodity bundle]] which gives an idea of the value of the [[Dutch guilder|florin]] at the time.</ref> <blockquote> Many individuals grew suddenly rich. A golden bait hung temptingly out before the people, and, one after the other, they rushed to the tulip marts, like flies around a honey-pot. Every one imagined that the passion for tulips would last for ever, and that the wealthy from every part of the world would send to Holland, and pay whatever prices were asked for them. The riches of Europe would be concentrated on the shores of the Zuyder Zee, and poverty banished from the favoured clime of Holland. Nobles, citizens, farmers, mechanics, seamen, footmen, maidservants, even chimney-sweeps and old clotheswomen, dabbled in tulips.<ref name=Chap3/> </blockquote> The increasing mania caused several amusing anecdotes that Mackay recounted, such as a sailor who mistook the valuable tulip bulb of a merchant for an onion and grabbed it to eat. The merchant and his family chased the sailor to find him "eating a breakfast whose cost might have regaled a whole ship's crew for a twelvemonth". The sailor was jailed for eating the bulb.<ref name=Chap3/> People were purchasing bulbs at higher and higher prices, to turn them around and sell them for a profit. But such a scheme could not last forever unless ultimately someone was willing to pay such high prices to actually take possession of the bulbs. In February 1637 tulip traders could no longer get inflated prices for their bulbs, and they tried to sell. As this realization set in, the demand for tulips began to collapse, and prices began to plummet. The [[stock market bubble|bubble]] burst. Some were left holding contracts to purchase tulips at prices now ten times greater than those on the open market, while others found themselves in possession of bulbs now worth a fraction of the price they had paid.<ref name=Chap3/> Panicked, the tulip speculators sought help from the government of the Netherlands, which responded by declaring that anyone who had bought contracts to purchase bulbs in the future could void their contract with a 10 percent fee. Attempts were made to resolve the situation to the satisfaction of all parties, but these were unsuccessful. Ultimately, individuals were stuck with the bulbs they held at the end of the crash&mdash;no court would enforce payment of a contract, since judges regarded the debts as contracted through gambling, and thus not enforceable in law.<ref name=Chap3/> According to Mackay, lesser versions of Tulip Mania also occurred in other parts of Europe, although matters never reached the state they had in the Netherlands. The aftermath of the tulip price deflation led to a widespread economic chill throughout the Netherlands for "many years".<ref name=Chap3/> == Modern views == Mackay's account was long accepted, but recent analysis of Tulip Mania suggests that his story was inaccurate and incomplete. Anne Goldgar, in her scholarly analysis ''Tulipmania'', argues that the phenomenon was limited to "a fairly small group" and that most accounts of the period "are based on one or two contemporary pieces of propaganda and a prodigious amount of plagiarism". She argues that tulips were treated more like art, for which high-status people paid exorbitant prices in the pursuit of beauty. She also notes that deals for tulips were made far in advance of when the tulips were dug out of the ground and paid for and that when the tulip market crashed, buyers simply didn't pay for their trades.<ref>Kuper, Simon "[http://www.ft.com/cms/s/50e2255e-0025-11dc-8c98-000b5df10621.html Petal Power]" (Review of {{Harvnb|Goldgar|2007}}), ''[[Financial Times]]'', [[May 12]], [[2007]]. Retrieved on [[July 1]], [[2008]].</ref> [[Mike Dash]], author of the modern popular history "Tulipomania," states <blockquote> The history of the tulip mania itself, however, remains remarkably obscure, and even now [as of 1999] it has never been the subject of an exhaustive scholarly inquiry. …My general feeling, after reviewing the available material, is that even after sounding the necessary notes of caution about the reliability of the popular accounts, historians and particularly economists remain guilty of exaggerating the real importance and extent of the tulip mania.<ref>{{Harvnb|Dash|1999|p=222}}</ref> </blockquote> There is no dispute that prices for tulip bulb contracts rose and then fell in 1636–37, but even a dramatic rise and fall in prices does not necessarily mean that an [[economic bubble]] or speculative bubble developed and then burst. For tulip mania to have qualified as an economic bubble the price of tulips would have become unhinged from the [[Intrinsic theory of value|intrinsic value]] of bulbs. Modern economists have offered several explanations why the rise and fall in prices did not constitute a bubble. While Mackay's account held that a wide array of society was involved in trading tulip bulbs, Goldgar's study of archived contracts found that even at its peak the trade in tulips was conducted not by commoners, but almost exclusively by merchants and skilled craftsmen who were wealthy, but not members of the nobility.<ref>{{Harvnb|Goldgar|2007|p=141}}</ref> Any economic fallout from the bubble was, contrary to Mackay's assertions, very limited. Goldgar, who identified many prominent buyers and sellers in the market, found less than half a dozen who experienced financial troubles in the time period, and even of these cases it is not clear that tulips were to blame.<ref>{{Harvnb|Goldgar|2007|p=247–48}}</ref> A 2007 paper appearing in the journal ''Public Choice'', by [[UCLA]]'s Earl A. Thompson, "The Tulipmania: Fact or Artifact?" provides an alternate explanation for Dutch tulip mania: that it was not caused by irrational speculation, but rather by a Dutch parliamentary decree (originally sponsored by Dutch investors made skittish by the Thirty Years' War then in progress) that changed the way tulip contracts functioned: [[Image:Bollenveld Hillegom.JPG|thumb|right|A modern day field of tulips in [[Hillegom]], [[Netherlands]]—despite their colorful history, tulips have remained popular]] <blockquote> "…both the famous popular discussion of Mackay and the famous academic discussion of Posthumus, 1929, point out a highly peculiar part of this episode. In particular, they tell us that, on February 24, 1637, the self-regulating guild of Dutch florists, in a decision that was later ratified by the Dutch Parliament, announced that all futures contracts written after November 30, 1636 and before the re-opening of the cash market in the early Spring, were to be interpreted as option contracts. They did this by simply relieving the futures buyers of the obligation to buy the future tulips, forcing them merely to compensate the sellers with a small fixed percentage of the contract price."<ref>{{Harvnb|Thompson|2007|p=101}}</ref> </blockquote> Prior to this parliamentary decree, someone who purchased a tulip contract was ''obligated'' to purchase the bulbs, known in modern economics as a [[futures contract]]. The decree changed the nature of these contracts, so that if the price rose too high the purchaser could opt to pay a fee rather than the full price (purchasers who paid the fee did not receive the tulip bulbs). This change in law meant that, in modern terminology, the futures contracts had been transformed into an [[Option (finance)|options contract]]. Given data about the specific payoffs present in the futures and option contracts, Thompson determines that tulip bulb prices in fact 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'."<ref>{{Harvnb|Thompson|2007|p=109}}</ref> ==See also== *[[Tulip Era in the Ottoman Empire]] == Notes == {{Reflist|2}} == References == *{{citation | title = Tulipomania: The Story of the World's Most Coveted Flower and the Extraordinary Passions It Aroused | last = Dash | first = Mike | authorlink = Mike Dash | year = 1999 | publisher = Gollancz | location = London | isbn = 0575067233 }} *{{citation | last = French | first = Doug | year = 2006 | title = The Dutch monetary environment during tulipomania | volume = 9 | issue = 1 | pages = 3–14 | doi=10.1007/s12113-006-1000-6 | url=http://www.mises.org/journals/qjae/pdf/qjae9_1_1.pdf | accessdate= 24-06-2008 | journal = [[The Quarterly Journal of Austrian Economics]] }} *{{citation | title = A Short History of Financial Euphoria | last = Galbraith | first = J. K. | authorlink = John Kenneth Galbraith | year = 1990 | publisher = Penguin Books | location = New York | isbn = 0670850284 }} *{{citation | last = Garber | first = Peter M. | year = 1989 | title = Tulipmania | periodical = [[Journal of Political Economy]] | volume = 97 | issue = 3 | pages = 535–560 | doi = 10.1086/261615 | accessdate= 24-06-2008 | journal = [[Journal of Political Economy]] }} * {{Citation | title = Famous First Bubbles | last = Garber | first = Peter M. | journal = [[The Journal of Economic Perspectives]] | volume = 4 | issue = 2 | year = 1990 | pages = 35–54 | url = http://www.jstor.org/stable/1942889 }} *{{citation | title = Famous First Bubbles: The Fundamentals of Early Manias | last = Garber | first = Peter M. | year = 2000 | publisher = MIT Press | location = Cambridge | isbn = 0262072041 }} *{{citation | title = Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age | last = Goldgar | first = Anne | year = 2007 | publisher = University of Chicago Press | location = Chicago | isbn = 9780226301259 }} * {{citation | last = Gross | first = Daniel | authorlink = Daniel Gross | title = Bulb Bubble Trouble; That Dutch tulip bubble wasn't so crazy after all | date = [[July 16]], [[2004]] | url = http://slate.msn.com/id/2103985/ | magazine = [[Slate (magazine)|Slate]] }} * {{citation | last = Hooper | first = William R. | title = [[s:The Tulip Mania|The Tulip Mania]] | periodical = [[Harper's magazine|Harper's New Monthly Magazine]] | year = 1876 | month = April | volume = 52 | issue = 340 }} *{{citation | title = Manias, Panics, and Crashes: A History of Financial Crises | last = Kindleberger | first = Charles P. | authorlink = Charles P. Kindleberger | year = 1978 | publisher = MacMillan | location = Basingstoke | isbn = 0333257162 }} * {{citation | title = Memoirs of Extraordinary Popular Delusions and the Madness of Crowds | last = Mackay | first = Charles | year = 1841 | authorlink = Charles Mackay | url = http://www.econlib.org/library/mackay/macExContents.html }} * {{citation | title = The Tulip | last = Pavord | first = Anna | year = 2004 | publisher = Bloomsbury | location = London | isbn = 0747571902 }} * {{citation | title = The Botany of Desire | last = Pollan | first = Michael | year = 2002 | publisher = Random House | location = New York | isbn = 0375760393 }} *{{citation | title = Irrational Exuberance (2nd ed.) | last = Shiller | first = Robert J. | authorlink = Robert Shiller | year = 2005 | publisher = Princeton University Press | isbn = 0691123357 }} * {{Citation | title = The tulipmania: Fact or artifact? | last = Thompson | first = Earl | journal = Public Choice | volume = 130 | issue = 1–2 | year = 2007 | pages = 99–114 | url = http://www.econ.ucla.edu/thompson/Document97.pdf | doi = 10.1007/s11127-006-9074-4}} == External links == {{wikisource|The Tulip Mania}} *[http://library.wur.nl/tulip/ Wageningen Tulip Portal], an extensive collection of historical resources, including scanned images of seventeenth century Dutch tulip books and pamphlets, from Wageningen UR Library" *[http://penelope.uchicago.edu/~grout/encyclopaedia_romana/aconite/tulipomania.html James Grout: ''Tulipomania'', part of the Encyclopædia Romana] * [http://image.fs.uidaho.edu/vide/descr849.htm Page on the Tulip Breaking ''potyvirus'' from Plant Viruses Online] * [http://www.thetulipomania.com/ Charles McKay's Account of Tulipomania in Modern English] * The fictional book The Confessions of an Ugly Stepsister, Gregory McGuire, pub. by Regan Books/Harper Collins (1999) is set in Haarlem, Netherlands during the period time of tulip mania. For a review of the book, see http://januarymagazine.com/SFF/stepsister.html. [[Category:Economic bubbles]] [[Category:Popular culture]] [[Category:Public opinion]] [[Category:History of the Netherlands]] [[Category:17th century]] [[ar:جنون التوليب]] [[ca:Tulipamania]] [[de:Große Tulpenmanie]] [[es:Tulipomanía]] [[fr:Tulipomanie]] [[ko:튤립 파동]] [[id:Tulip mania]] [[it:Bolla dei tulipani]] [[he:שיגעון הצבעונים]] [[nl:Tulpenmanie]] [[ja:チューリップ・バブル]] [[no:Tulipankrakket]] [[pl:Tulipomania]] [[pt:Mania das tulipas]] [[ru:Тюльпаномания]] [[sv:Tulpanmanin]] [[zh-yue:鬱金香狂熱]] [[zh:鬱金香狂熱]]