The Netherlands, 1636.
On a dark, cold December night a wealthy merchant takes pity on a starving sailor…
“Thank you for the hospitality sir. I’ve been shipwrecked; I’m starving.”
“It’s my pleasure, young man. Relax. Eat. Get warm.”
"This is all so delicious! You are so kind!”
“Noooo!”
“That tulip bulb was worth enough to have fed an entire ship full of men for more than a year!"
“I I I thought it was an onion…”
“Help! Arrest this swine! Take him away!”
“I’m, I’m sorry. I, I didn’t know…”
“For your crime, you are sentenced to rot in prison.”
Whoa. Whoa. Wait a second, how did we get here?
Well, that’s gonna require a bit of context…
In the early 17th century, the Netherlands was actually a European powerhouse. They had
a formidable navy and had established colonies in just about every continent. It was home to
famous artists like Rembrandt and Vermeer. It was the first country in Europe to develop a modern
economy embracing international trade and for that they became the wealthiest country in Europe.
The first “modern” securities (stocks and bonds) market was established in Amsterdam in 1602.
This more capitalistic economy
allowed for the rise of the middle class—the opportunity of the common man.
But religiously, displays of opulence—of this new-found wealth—were looked down upon. Unless,
those outward displays of riches also …glorified God. This is why from an early point
in their history, the Dutch became obsessed with their gardens. Having a beautiful garden,
they believed, allowed them to glorify God but also… gave them an opportunity to show off.
In the second half of the 16th Century tulips had found their way
from their native home in central Asia to major European cities.
And with their beautiful, vibrant petals, tulips became all the rage—they were a coveted
addition for anybody-who-was-anybody’s garden. They became THE status symbol.
Which provided the capitalistic merchants—and even
the common craftsman—with an opportunity to profit…
"It's easy really. You just unearth the bulb and separate the mother bulb from the daughter bulbs."
“...my tulips bring all the boys to the yard...”
"I know the price of tulips has been crazy recently - real volatile. That's just part of it. Hang in there.
I've got good news for y'all. I've my new merch in to help you stay strong and remember to hold on to those bulbs all the way to the..."
"...and that is the end of my humble, entry-level tutorial on painting. Please, don't forget to like and subscribe."
“Trump Tulips are the world's greatest tulips and I mean that in every sense of the word and the Sharper Image is the only store where you can buy them.
Believe me, I understand tulips—it’s my favorite flower—and these are the best!”
"...yo, making money with tulip bulbs has never been easier...
step 1 get yo’self some money
(mortgage yo’ house if ya have to), 2 find a tavern where you can trade, 3 buy contract,
4 sell contract to someone else for mo’ money, 5 collect yo’ tendies, step 6 do it all over again…”
That old dutch tiktok idiot wasn’t too far off actually. I’ll explain how it worked in just a
second, but did you see his merch though!? Sorry guys but I gotta check that out… that was legit!
Anyway, back to that TikTok idiot there at the end…
You see, there IS a limited supply of tulips and the way that they multiply is inherently further
limiting—it can take 7-10 years for a seed to fully mature. Anytime a commodity exists
that people want but of which there is a limited supply, a market will
naturally arise—buyers and sellers. Now, if the price of this commodity was incredibly low,
everyone would be able to afford it and so everyone would try to buy one and the elites would
try to buy many. Well, this is what makes prices go up in a market: when a merchant sees that more
goods are wanted at the current price than he has goods to sell, he naturally raises the price.
This will continue to happen until the price is such that the number of goods
the sellers are still willing to purchase at that new price matches the merchants’ supply.
Easy enough, basic free market economics. But wait a second… who’s this?
What if, as this price adjustment is taking place in the market,
others notice the significant rise in the price of this commodity. What if people who otherwise might
have no interest in tulips themselves per se… see the quick profits being made by the merchants—they
observe that prices just keep going up day by day—they smell opportunity.
So now, a few people, who were not previously merchants—we’ll call them traders,
or speculators—join the party and begin to profit as well …as the market still tries to
find its equilibrium. But now, notice, there are more buyers. And when you see the craftsman from
down the street and the idiot on (...) tiktok starting to rake in ridiculous profits… you
might question getting involved yourself. Well, at least more and more working class—non-merchant,
non-wealthy—individuals began entering and profiting from the tulip bulb trade.
To facilitate this trade they set up what they called colleges
in the back of taverns where groups of these traders would regularly meet.
Now, they initially were buying and selling bulbs …when they had them. But bulbs were actually only
out of the ground for a few months, otherwise they would die. So, just like many enterprising
and crafty speculators over the centuries, these bulb traders devised a system that would allow
them to continue their trade even when they did not have access to the commodity itself.
They essentially invented a futures contract. They created contracts that
allowed them to purchase the bulbs for a set price at a future time,
like when they were harvested out of the ground the following June.
These dutch traders effectively created the first virtual marketplace—you
were buying things to which you could not yet have access.
For all these new high-flying traders, this meant profit opportunities now existed year round.
What made matters worse was that because they were not taking possession of the bulbs today,
they decided that traders were allowed to only put about 10% down and settle the remaining 90% when
they actually took possession. Well, for someone who was just doing this for the profits and
didn’t actually want the bulb—as in, they fully intended on selling their contracts before the
spring rolled around—it didn’t make sense to save 90% of what you had for that future obligation
that you never intended to be stuck with… no! You might as well put 100% of your money to work for
you. In fact, the profits were so easy to come by, that you might as well take out loans on whatever
you could so that you could buy up even more bulb contracts. It seemed like the savvy thing to do!
At least, that’s what all the “social media overnight millionaires” of their time were doing…
So now, not only do we have (1) futures contracts and a (2) disconnected virtual marketplace,
but we also see the impact of (3) leverage and personal financial overextension
entering the picture. These are all too common themes as you explore the bubbles of
…history? It’s different now, right?!
Now, there’s one more piece of this puzzle that really led to the euphoria that was Tulip Mania:
it was the introduction of a new type of tulip to the market
in the 1620s. The country wasn’t prepared for the madness that was about to ensue.
Called a bizarre tulip, these bulbs had (what we now know to be) a rare virus that changed
their genetic makeup—it caused the pedals to be multicolored. Streaks of red and violet and
other vibrant colors shot through the pedals like flames. This variety was extremely rare
and very difficult to reproduce. Remember how seeds take 7-10 years to turn into a new
flower (if they survive). Even then, the virus didn’t always carry over. Now, they—of course,
not understanding genetics as we do today—did not have access to this kind of information. There
was no reason for them to NOT think that one of the daughter bulbs to one of these multicolored
tulips would allow them to ultimately grow even more of this ultra-rare commodity.
This combination of the novel, standout splendor of an existing status symbol
coupled with the rarity of these bulbs, made the elites (and, probably even more so,
the avaricious traders) want them all the more—price was no object.
As prices soared, some lucky middlemen made fortunes. Seeing how easy it was,
more and more people left their jobs, some leveraging everything they had,
to enter the ‘tulip bulb trade.’ As long as you could find a bulb or bulb contract to purchase,
you’d always be able to find someone else—a Greater Fool—to buy it from you for even more.
It was said that at the height of the craze one tulip bulb sold for 12
acres of land. Another sold for 10x the annual earnings of a skilled craftsman.
The average skilled craftsman in the United States today makes $46,800 per year.
That’s a single—albeit very pretty—tulip bulb selling for almost $500,000.
Perhaps one of the most famous transactions was described by Scottish journalist Charles Mackay’s
account of Tulip Mania. He details a list of goods said to have been traded for a single bulb…
I’ve come to trade for your tulip today sir.
I’ve brought with me everything I have and placed it at your feet:
Two lasts of wheat Four lasts of rye
Four fat oxen Eight fat swine
Twelve fat sheep Two hogsheads of wine
Four tuns of beer, and Two tuns of butter
Do we have a deal?
This is very generous of you. But this flower is so beautiful and rare - not unlike my hair - I want more…
Well, I suppose I could add to that the…
One thousand lbs. of cheese I happen to have with me.
Ooo! Very good. Very good. But I want more…
Uh… well, I
won’t have anywhere for my family to sleep, but I suppose I could throw in my bed as well.
A complete bed
More…!
I mean, goodness sir, here you can take my suit too if you want…
Yes, very nice. But I need a little more.
Sir, please, this is all I have.
I’ll take the baby.
The baby?
The baby!
Uh… [kiss]...
Good Lord, young man, I was only joking. What is wrong with you!?
Oh, ha, yeah, me too…
Give me that fine looking cup and you have a deal!
Ah man! I just got this! Fine!
Now, much of what Mackay wrote may have been a bit biased. He was definitely working on limited data,
much of which came from religious propaganda that was created throughout the centuries
after this event to warn against the dangers of gambling and speculation… so, some of the stories
within this saga may be apocryphal (including that one of the poor sailor from the beginning),
but something definitely did happen. We do have some records—we have records of
some of the transactions; we have records of some of these contracts;
and we can see how quickly and by how much the prices were climbing.
And there’s something romantic about the thought of someone bartering for… anything
really… with 1,000 pounds of cheese!
But then… as legend has it, one day a seller presented his offering in the backroom of one of
these colleges, and… [crickets]. For the first time ever, there were no buyers to be found—at
least not at a desirable price, one higher than they had paid. Now, this lackluster
showing could have just been the byproduct of a number of outside factors. Or perhaps,
there really were no more Greater Fools. Needless to say, bulb contract hodlers were nervous.
Whatever the reason, upon seeing and hearing about this, sellers finally (and very suddenly)
realized: “I could actually end up stuck with all these contracts… Out of
ALL this money that I don’t even have… that I collateralized all I own to be able to use!”
So… they wanted out. They panicked. Traders from that city quickly rode to the taverns in other
cities in hopes of beating the news and being able to offload their contracts at ANY price really
…which only further perpetuated the rapid spread of the panic.
In short order, with no buyers on the other side, prices plummeted overnight.
As you can imagine this ruined a lot of people. The government tried to help—they bought out
contracts at 10% of what had been paid for them—but many …were still ruined—remember,
they didn’t even own the tulips, just contracts—just relatively-worthless
pieces of paper now. A little fuel for their next fire maybe.
Consequently, the government also started imposing more restrictions on these types of transactions,
because well… obviously the common man cannot be trusted to make sound decisions with these sorts
of things nor should he have to suffer the devastating consequences of his own actions…
So, were these dutch trading noobs all just crazy to think these flowers could
reach such insane valuations? Were they all just caught up in
a euphoric bubble which can be almost impossible to identify in the moment?
Well now… before you judge them too harshly the Semper Augustus tulip was a pretty
gorgeous flower. And you know, tulips in general are pretty good-looking flowers…
actually, maybe they were onto something here… Hold up…
The prices are a steal. They must have way over-reacted on the downside.
We could make millions. I better get out ahead of this before TikTokers catch on...
This should take care of your college tuition. We're going to ride these bulbs to the moon, my sons.
If I could teach you one thing it'd be to not have paper hands like the old dutch.
Rosie! DON'T EAT THAT!