The medieval financial pyramid that brought down the Dutch economy: Tulip Mania

2024 Author: Richard Flannagan | [email protected]. Last modified: 2023-12-15 23:55

Economists and historians are still arguing about what it was - a pyramid, a speculative bubble or one of the first economic crises, and whether its consequences were so catastrophic for the country. Everyone agrees on only one thing, tulip mania so amazed society that it undermined its ethical foundations. The political climate in Holland has never been the same since then. This example, included in all textbooks, is remembered today when analyzing the prospects for cryptocurrencies.

This story took place in the Netherlands in the years 1636-1637. In those days, tulip fever captured several countries - France and Germany also succumbed to the charm of an amazing flower, recently introduced from the east and taking root on the light fertile soils of Europe. However, it was in Holland that this "disease" reached such an impressive scale that it became the first example of an economic anomaly in the history of mankind.

Interestingly, the cause of the fever was equally the desire for profit and the love of beauty. The fact is that tulips imported from the Ottoman Empire in the middle of the 16th century in Europe very quickly underwent selection, which greatly modified the flower. At the same time, it lost its aroma, but acquired the shape we know, became larger and, most importantly, a game with colors began. A characteristic feature of this plant is its tendency to mutation - you can get a new-looking flower in just a few seasons. So gardeners very quickly bred two-color varieties. Ordinary flowers were inexpensive, but new items became the subject of search and collecting - everyone wanted to have rare wonders.

However, the most interesting was ahead. In 1580, Karl Clausius, one of the most respected breeders in Europe, first observed the phenomenon of variegation. In every hundred bulbs, one or two were unexpectedly reborn - their colors mixed in a whimsical pattern. This unprecedented beauty amazed people. Interest was also fueled by the fact that the mechanism of the phenomenon remained unknown, and it was not possible to obtain new bulbs of this type purposefully, despite numerous experiments. The element of surprise and extreme rarity of the phenomenon, of course, inflated prices. These flowers, they began to be called "Admirals" and "Generals", just drove tulip lovers crazy. Today, scientists have understood that the cause of such a rebirth is the tulip mosaic flower virus, but in those days, in pursuit of super-profits, people could only plant new fields of tulips in the hope of accidentally getting a multi-colored "chimera". The most famous tulip of this kind is the "Semper Augustus" ("August forever"). It is documented that 1000 guilders were requested for one onion in 1625. And this, for comparison, then corresponded to 10 kg of silver or the salary of an artisan for three years. So gardening has become a gamble, akin to gold prospecting.

The enlightened Europeans of those times enjoyed tulips as works of art. Each flower was at the same time a gift of nature, and the creation of human hands, and a happy accident. Aesthetics and craving for collecting rarities in this case gave the primary impetus. It is known that out of 21 participants in the first tulip auction in 1625, about which detailed records have been preserved, only five were professionally engaged in tulips, but 14 buyers were known as collectors of paintings. However, the reason for further events was undoubtedly the thirst for profit and the expectation of super profits.

What happened next is described in almost all economics textbooks. This example has become a classic. Bulb prices rose steadily, and they began to be bought not for planting, but for resale. Moreover, since 1634, the Dutch began to widely use the sale of contracts for the supply of bulbs in the future (futures) in the tulip trade. Since the bulbs are in the ground for most of the year, and we wanted to hold auctions all the time, they began to be resold “in absentia” and many times. Due to huge profits, not only professionals, but also ordinary people began to engage in such speculations. In the summer of 1636, in many cities located in the areas of traditional tulip craft, “folk” auctions began. Tulip mania swept the whole country. However, the widely circulated data on mortgaged houses and entire farms exchanged for a single onion seem to historians today to be exaggerated.

The fever peaked between October 1636 and February 1637. During these months, the prices for bulbs, which were already sky-high, at first soared, having risen in price by 20 times, but then fell even faster - the bubble burst. There was a panic in the market. Many people were left with tulip contracts in their hands, but now they did not want to buy the bulbs. Many years of litigation began, and the realization of the violated obligations was perhaps the most difficult of the consequences.

Previously, economic ties in Europe were largely based on trust. Merchants were a special guild in which a person who did not fulfill his obligations became an outcast and undoubtedly left this sphere of activity. Now, multiple refusals to pay have shown how ephemeral the relationship was. Dutch society, with its strict business ethics, experienced a real crisis of confidence for the first time, and this was reflected in the development of trade relations in the future. As for the country's economy as a whole, in the opinion of modern researchers of this issue, it has not suffered so much. In the following years, bulb prices gradually leveled off, and floriculture became one of the leading sectors of the Dutch economy. There is no doubt that the tulip is very firmly "rooted" in the culture of this country. Tulip mania taught people a lot, but did not discourage them from enjoying the wonderful joint creation of nature and man.

To plunge into the atmosphere of the fabulous Holland, see 20 picturesque photographs, looking at which you understand why you should visit the Netherlands