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Links 🔗
- Dutch Tulip Bulb Market Bubble
It’s tulip season in The Netherlands but sadly the world renowned Keukenhof is closed this year due to the pandemic. Tulips are one of the Dutch’s biggest source of tourism revenue, but the national flower was once the cause of the world’s first economic bubble. Here’s the story:
The Seed:
The 17th Century was the Dutch Golden Era, due to their global maritime trade and colonisation of countries in Asia and Africa. The wealth created the Dutch middle class, but they had no titles to land or ruling power, so material consumption became a way to flaunt. The tulip was a popular status symbol, the more abundant the tulip garden and the rarer the flower colour/style, the higher the social status.
The Tulip:
Surprisingly, tulips are not native to Holland. They were originally imported from Asia but grow well on Dutch soil due to the mineral contents. Like most plants, tulips grow from seeds, but seed-grown tulips take years before they produce flowers. During non-flowering months, the tulip retreats underground (dormant phase) and produces clones called bulbs (kinda like garlic), bulb-grown tulips will bloom the following flowering season. Tulip flowers wilt if relocated, so the best way to transfer them is in their bulb form during non-flowering months.
The Mania:
Imagine this, a buyer sees a rare tulip variant and wants to buy it from the florist for his own garden. The florist can’t move the tulip in its flower form, so a contract is written as a promise to relocate it in bulb form and the buyer pays $10 (ie. futures contract) The buyer then sells the contract to someone willing to pay $25 for the flower, earning $15. These exchanges were all over Holland, no longer trading for the flower itself but for the speculation of how willing someone will buy it for. Tulip futures inflate higher and higher to outrageous prices, until nobody could willingly afford it. Hence, the tulip bubble burst whilst many poured out their fortunes.
Although the burst did not result in a catastrophic financial crisis, the event is a good tale to tell because it makes people look foolish. Selling houses for tulips? That’s crazy. Surely people today won’t make the same mistake and pour millions into hype, right?
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