Tulipomania
The Introduction of the Tulip to Europe
In 1593, botanist Carolus Clusius brought tulips from Constantinople to the University of Leiden in Holland, planting the bulbs in a small garden for purposes of medicinal research. People who saw the flowers soon fell in love with them, and tulip bulbs became a status symbol for the wealthy because they were beautiful and hard to get.
By 1634 the tulip had increased in reputation to such an extent that it was considered bad taste for any man of fortune to be without a collection of them. Early buyers were people who prized the lovely flowers for their own sake, and the rage for buying them soon reached the middle classes. Merchants and shopkeepers began to compete with each other in the rarity of these flowers and the prices to be paid for them. A trader at Harlem was known to pay one half of his fortune for a single root, not to sell it again at a profit, but to keep it for his friends to admire.
As the mania increased, so did the prices. In 1635 many people were known to invest a fortune of 100,000 florins for the purchase of forty roots, around $75,000 in today's prices. The most precious bulb of all, the Semper Augustus was thought to be very cheap at 5,500 florins. When people ran out of money, they resorted to barter. One bulb was sold for twelve acres of building ground, while another was sold for "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, two tuns of butter, one thousand pounds of cheese, a bed, a suit of clothes and a silver drinking cup", enough to buy a large house.
In the 17th Century, of course, communication was not what it is to-day, and people who had been out of the country were unaware of the excitement. In his book, Extraordinary Popular Delusions and the Madness of Crowds, published in 1841, Charles MacKay tell of a sailor, who on returning home, hastened to tell a wealthy merchant of the safe arrival of his ship and cargo.
The merchant, to reward him for his news, munificently made him a present of a fine red herring for his breakfast. The sailor had, it appears, a great partiality for onions, and seeing a bulb very like an onion lying upon the counter of this liberal trader, and thinking it, no doubt, very much out of place among silks and velvets, he slyly seized an opportunity and slipped it into his pocket, as a relish for his herring. He got clear off with his prize, and proceeded to the quay to eat his breakfast. Hardly was his back turned when the merchant missed his valuable Semper Augustus, worth 3000 florins. The whole establishment was in an uproar. Search was everywhere made for the precious root, but it was not to be found. Great was the merchant's distress of mind. The search was renewed, but again without success. At last someone thought of the sailor. the sailor, simple soul! Had not thought of concealment. He was found quietly sitting on a coil of ropes, masticating the last morsel of his "onion".
The unhappy sailor spent several months in jail as the price for his onion!
The demand for rare tulip bulbs increased so much that in 1636, regular marts were established in Amsterdam, Rotterdam, Harlem, Leyden, Alkmar, Hoorn and many other towns. With prices escalating rapidly, it didn't take long for the speculators and gamblers to get involved. They created trading activity, with some traders could earning $44,000 commission every month. Bulbs were normally sold by weight, usually while they were still growing, so all a speculator had to do was plant his bulb and wait for the resulting crop. People from all walks of life sold their homes and property in order to speculate in tulip trading. Tulip notaries were appointed to record transactions, and laws and regulations were developed to try and control the craze, but like any other profit boom, trade was regulated by the market and not by regulations.
It couldn't last forever, of course. and towards the end of 1636, prices began to fall as people began to liquidate their tulip holdings. As the selling increased, the price of bulbs fell by 90% in a six week period. People who had agreed to purchase on the futures market no longer had the funds to do so, and people who possessed the tulips found that people didn't want to buy them.
The tulip holders appealed to the government to help, such help being refused. Eventually assembled deputies in Amsterdam declared that all contracts made prior to November 1636 were null and void. Contracts made after that date were settled if buyers paid 10% of the agreed price. This of course pleased no-one. The sellers were only getting 10% of what they had expected, and the buyers were still paying more than the bulbs were worth on the open market. With prices continuing to fall, the provincial council in the Hague was asked to try and find some way of stabilising prices, but without success. Meanwhile in Amsterdam, the courts refused to honour tulip contracts at all, regarding them as gambling debts.
And here the story ends. Bulb prices fell to as little as $1 in to-day's money. Those who were left with bulbs had to bear their losses as they could, and those who had made profits were allowed to keep them. Thousands of Dutch businessmen were ruined in less than two months, and commerce in Holland did not recover from the shock for many years.