Tulip Mania

Published on: March 21, 2022

The beautiful Lambton Estate, where Three Counties calls its home, is ready to shake off winter.

Everywhere you look there is evidence of spring and longer days; notably me dusting off the running shoes in the evenings more often than a month or so ago. 

Spring blooming Tulips are emblematic of the Netherlands and of a particularly fascinating period of speculation.

A native flower of the Ottoman Empire, the tulip came to Europe in the 16th century. It proved to be a hardy flower able to grow in harsh conditions and differed from others in Europe due to its intense petal colour. (Wikipedia, 2022)

The newly independent Netherlands was enjoying a booming economy as the centre of the East Indies trade and the tulip became symbolic of its success. Tulips and tulip bulbs found themselves as highly sought after “luxury” items by the Dutch elite. 

Demand increased further when more varieties of tulip were discovered and cultivated – growers even gave various classifications of bulbs titles like “Admiral” and “General”, an example being “Admiral van der Eijck”. Part of the joy of ownership was the unknown colours over the years a bulb could produce. (Wikipedia, 2022)

The flower’s dormant phase (June – September) was the period where bulbs could physically change hands (any gardeners amongst you may know that they can safely be uprooted and transported). The rest of the year was dominated by contracts agreeing to purchase the tulips by a certain date – any traders amongst you may recognise these as ‘futures contracts.’ 

Prices grew rapidly and many entered the market looking to simply profit as opposed to owning a nice flower to show off to their peers! By 1636, tulips were the Netherlands’ fourth highest export. Some amounts were reported to be huge – supposedly 5,200 guilders for a single bulb was paid in 1637 – this being 20 times the annual income for a skilled worker at the time. (Harford, 2020)

There is a legend, fuelled by Scottish journalist Charles MacKay in the 1840s (nearly two centuries later), that seemingly everyone and their dog in the Netherlands was involved in the tulip trade. His famous book, Extraordinary Popular Delusions And The Madness of Crowds, includes tales of bulbs changing hands ten times a day, whole industries grinding to a halt as workers dropped their tools to join the trade and one of a sailor being jailed for mistaking a rare bulb for an onion and eating it along with a plate of herring. (Harford, 2020)

The legend goes that when the market plummeted it drove the Netherlands to near depression with bankruptcy and widespread ruin.  

The bottom did indeed fall out of the market around springtime 1637 – prices dropped 90% almost overnight.

The Real Story Behind the 17th-Century 'Tulip Mania' Financial Crash -  HISTORY
Figure 1. The supposed price of tulips (Thompson, 2007)

There are a few ideas around why, the most prominent and logical is good old supply and demand. As springtime came, it was noticed that tulips were growing plentiful year on year, even supposedly rare ones. Why pay significant sums for something that is easily grown? The trade, based primarily on trust, almost vanished with no courts able to uphold any contracts. (Boissoneault, 2017)

Historians nowadays almost completely reject MacKay’s ideas on Tulip mania.  Anne Goldgar, for example, could not find any evidence of bankruptcy and only a few people, at the very elite of Dutch society, were involved. She found only a few cases where even 400 guilders had been paid (though that was still an average worker’s yearly salary!) In general, thankfully the Dutch economy was not affected. (Boissoneault, 2017)

Parallels are easily drawn. Cryptocurrencies and NFTs are often called the modern tulip manias. In a wonderful take on history repeating itself, an NFT collection of tulips was launched last year – some selling for $55,000. (Wu, 2021)

It’s still a fascinating period in history. We can buy tulips so easily and cheaply these days and it’s easy to scoff at the idea of a supposedly informed elite spending astronomical sums on something plentiful to us.  

It’s definitely a lesson that, throughout the ages, there’s never been an easy, quick way to achieve returns. Good financial planning takes place over the long term and uses a variety of factors. 

And that, maybe, tulips are best left to be admired in a vase on your windowsill!

As always, please note – this article should not be regarded as financial advice and is for information purposes only.

Please Note: Three Counties Ltd do not take responsibility for the content and accuracy of external links. This article should not be regarded as financial advice and is for information purposes only.

Writer Bio: Nick Cranston is a Trainee Financial Adviser at Three Counties ltd joining the team in December 2021. He passed the necessary industry diploma in August 2021.

Works Cited

Boissoneault, L., 2017. There Never Was a Real Tulip Fever. [Online]
Available at: https://www.smithsonianmag.com/history/there-never-was-real-tulip-fever-180964915/ [Accessed Feb 2022].

Harford, T., 2020. Was Tulip Mania really the first great financial bubble?. [Online]
Available at: https://www.bbc.co.uk/news/business-51311368 [Accessed Feb 2022].

Thompson, E. A., 2007. The tulipmania: Fact or artifact?. Public Choice, Issue 130, pp. 99-114.

Wikipedia, 2022. Tulip Mania. [Online].

Wu, E., 2021. An NFT collection inspired by the 16th-century Dutch tulip bubble is drawing flocks of bidders — and one has sold for more than $50,000. [Online]
Available at: https://markets.businessinsider.com/news/currencies/nft-crypto-dutch-tulip-bubble-bitcoin-meme-stocks-gme-amc-2021-08 [Accessed Feb 2022].

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