Today, you can buy several tulips for a couple of dollars.
In 1637, you could buy every house on your street, for a couple of tulips.
The year is 1637, right in the middle of the Dutch Golden Age.
This is the era of names such as Rembrandt, Christiaan Huygens, and Johannes Vermeer.
And even though it was in a golden age, The Dutch Republic was a new country founded only
half a century ago, when it revolted against the Spanish Empire and started the 80 years’
war.
This golden age was spurred in large part due to The Dutch Republic's invention of early
capitalism.
And it is here, in Amsterdam, that the first company is founded, the first stock exchange
created, and as we will see over the course of this series...
it's the place where the first financial bubble burst.
This, is the story of Tulip Mania!
But what even is a financial bubble?
For us economics nerds this is easy to understand.
For the rest of us, here is a short example: Let's say you have a bitcoin.
And that bitcoin costed 100 dollars and you sell it for 150 dollars, earning you a profit
of 50 dollars.
That evening you tell your friends you just made 50 dollars with bitcoin.
Your friends want the same profit so they buy a bunch of bitcoins hoping to sell it
later at a higher price.
A week later they sell each bitcoin for 200 dollars.
And then new people come to buy bitcoin, hearing of all this profit being made.
Over time, more and more people come in.
Each person is betting they will be able to sell at a higher price to the next person.
But eventually you run out of buyers and the price goes down.
It crashes.
This is an economic bubble.
And like all bubbles: eventually they must burst.
Tulips originally came from Persia and traveled via the Ottoman trade to western Europe in
the 16th century.
Tulips come in a variety of colour and they rapidly became prized above all other flowers.
The Dutch Republic saw the rise of a new middle class and these merchant and traders were
willing to pay large sums of money for the newest, the latest, the most spectacularly-coloured
tulips.
Each year new varieties were cultivated.
In particular there was one type of tulip that was prized above all other tulips.
This tulip had darker coloured stripes and 'flames' on a lighter background.
They did not get this colour due to the flower’s genetics, but because of a virus.
But this was the early 17th century and the field of genetics wouldn’t exist for another
200 years.
This meant that as a tulip grower, you could never be sure whether you had an ordinary
tulip or an extremely valuable “flaming” tulip.
This made tulips a risky investments.
Tulip traders usually had their own private garden where they would grow them, but they
were not professional tulip traders.
As far as I could find out, none of them were.
They all had a day job and tulip growing and trading was a side business for them, a hobby.
These men belonged to a new middle class which was just forming in the Dutch Republic thanks
to the Dutch East India Company.
But just because tulips were a hobby, didn't mean they were amateurs.
In fact, these men knew a lot about this plant and growing the best one was a serious hobby,
not just a casual one.
And by the 1620s a beautiful new flower had emerged: the Semper Augustus.
The Semper Augustus... god don't you just love that name... Anyway, the Semper Augustus
was owned by one man.
And he was crafty.
He knew that if he sold the offspring of this tulip then it was only a matter of time before
his customers would grow more of them and then he would have competitors.
So he did what most companies would do in his situation: create a monopoly, meaning
he was the only one who was able to sell the Semper Augustus.
How did he do it?
Well, he created a contract with very specific terms.
first, you weren't allowed to sell your tulip bulb again without the express permission
of the owner and secondly, you weren't allowed to sell any of the offspring from the tulip
bulb either.
As you might imagine, many traders did not always honour this contract.
And many an angry merchant went to the Dutch notary office to file an official complaint.
Records of these complaints can still be found in the archives of many Dutch cities to this
day.
And it is through these records that we know how much tulips were worth during that time.
Even Though not all merchants honoured the deal, most of them did.
This way, he was assured that he could control how many of his Semper Augustus were being
sold and as a result, the price went up.
By 1623 the price for a single Semper Augustus tulip bulb was worth 1000 Guilders.
By the end of 1625, that price has risen to 3000 Guilders.
To put this into perspective, a skilled artisan such as a carpenter would earn about 300 Guilders
per YEAR . So that meant that by 1625, a carpenter would have to work 10 whole years, not spend
any of that money on food or a house or anything else.
and then, after 10 years, he would finally be able to take all his money to a tulip trader
and buy... a single bulb.
And that's without the price going up any further than it already did.
An average carpenter in The Netherlands today earns about 30.000 Euro per year, meaning
this bulb would cost you about 300.000 Euro...
300.000 Euro.
What?
Because my audience comes from a variety of countries, here is how much is would cost
in some other popular countries with viewer.
And this is where we will leave it for today…
At TEN times average annual wages.
Come back next time, as the prices will get even higher as more people join the tulip
trade.
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My next video will continue the story of tulipmania.
After that, I will make a video on the anniversary of the Nuremberg Trials on the 20th of November.
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