For Dutch, a flowering inferno

Sun Journal

Tulips: In the 17th century, speculators drove up the price of the exotic bulb. And as with all market manias, including stock day-traders, the bubble eventually burst.

April 11, 1999|By William Patalon III | William Patalon III,SUN STAFF

In the 1600s, the Dutch literally speculated themselves into economic ruin over -- please don't laugh -- tulips.

Tulip Mania wasn't the first speculative bubble the world had seen, nor would it be the last. But the flowering inferno was the first capitalist frenzy to be well-chronicled. To this day, the great tulip bubble is invoked by financial gloom-and-doomers whenever euphoric speculators seeking endless riches embrace the belief that their investments can only rise in value -- and never fall.

In the Netherlands, what began as an ostentatious hobby of the wealthy evolved into a speculative mania in which even the masses saw tulip bulbs as their road to wealth. The frugal and practical Dutch drained their savings, sold property and businesses and some, like today's stock market day-traders, gave up their jobs and put their every last florin into tulip bulbs.

As the mania ran its course, much of the Dutch economy became reoriented toward tulip speculation. Some even suggested that the country back its money with tulips instead of gold. Dutch economists predicted an ever-rising standard of living.

Alas, when the bulb-bubble burst, the Dutch economy was smashed.

Flaunting wealth

Tulips reached the Netherlands from the Middle East in the 1500s. Holland at the time was a powerful country and a cultural leader. Its fleet was said to account for half the world's shipping, and its artists were developing a tradition that would soon produce Rembrandt.

In so robust an economy, tulips were one way to flaunt wealth. The flowers were pretty and -- even before the mania -- weren't cheap.

But as demand from the rich drove bulb prices higher, the masses wanted in on the action. The flowers went from harmless hobby to financial nightmare.

"In 1634," writes Charles Mac-Kay in his book, "Extraordinary Popular Delusions & the Madness of Crowds," "the rage among the Dutch to possess [tulips] was so great that the ordinary industry of the country was neglected, and the population, even to its lowest dregs, embarked in the tulip trade. As the mania increased, prices augmented, until in the year 1635, many persons were known to invest a fortune of 100,000 florins for the purchase of 40 roots."

That sum would be at least 100 times the annual income of a middle-class Dutch family. By Mac-Kay's reckoning, four fat oxen were worth 480 florins, eight pigs 240 florins, two hogsheads of beer 70 florins and 1,000 pounds of cheese 120 florins.

As demand boomed, it was no longer enough to own just any tulip; mutant forms sporting wild patterns became the rage. Most Dutch had gardens, and cultivators searched for such mutations. "A break," as it was known, was akin to a winning lottery ticket.

New industries sprouted: tulip "analysts," who graded and assigned market values; firms specializing in packing, shipping, storage and insurance. Wall Street-like tulip exchanges were established in Amsterdam and Rotterdam. "Futures" contracts were created -- not unlike the currency, commodity and stock-price derivatives of today -- which allowed traders to speculate on the direction of prices for particular varieties of tulip.

As the frenzy neared its climax, prices were doubling every day, according to Robert Beckman, author of "Crashes: Why They Happen -- What to Do."

The `Greater Fool Theory'

It was casino capitalism: Nobody cared about the actual value of their Admiral Van Der Eyck or Semper Augustus bulbs; speculators were confident that no matter what they paid, someone else would pay more. Economists call the mentality the "Greater Fool Theory."

Because it was a momentum market, speculators devised unscrupulous schemes to keep prices rising. Sometimes they released trained chickens, pigs or dogs into fields to destroy tulip crops. Or they cornered all the examples of a particularly voguish bulb and started a rumor that the field that grew them had been destroyed in one of these raids. When prices jumped, they dumped -- and profited handsomely.

Beckman tells of a cobbler in The Hague who managed to cultivate a black tulip. Traders from another city promptly paid him 1,500 florins for the single bulb. The deal done, the buyer immediately ground it under his heel. He, too, it transpired, had grown a black tulip; destroying the rival bulb tremendously escalated the value of his own.

At the mania's height, a stevedore was jailed on felony theft charges because, thinking it an onion, he had cut up a Semper Augustus bulb to spice a piece of herring for his lunch. At market, the bulb would have fetched 3,000 florins -- enough to feed him and his shipmates for a year.

Tulip mania ended as all speculative bubbles do -- when the supply of "Greater Fools" willing to pay the inflated prices was exhausted.

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.