There seem to have been speculative booms and busts throughout history, such as those in saints’ relics and in “unicorn” horns (actually narwhal tusks) to be made into kings’ goblets that neutralize poison. But the first extensively documented one in Europe seems to be the early seventeenth century Dutch frenzy called Tulpenwoerde—-tulip madness or tulipomania. At its peak, family fortunes were squandered for a single bulb. It can serve as a perfect example in miniature of the great speculative frenzies that have come since, including those in our own time.
First, the tulip itself. The name may come from Turkish dulban, a turban. In the mid-sixteenth century, travelers in Turkey had been struck by the flower’s beauty and had brought it to Vienna; it soon attracted wide notice, and within a few years was grown in Germany, then Belgium, then Holland. In the late 1570s it reached England, where the new flower became popular in court circles. Here was something new, interesting, and valuable, on which public attention was understandably focused. It thus became a typical object of speculative interest. By the early seventeenth century in France, tulips were immensely fashionable, and the early traces of the later madness could be seen.
Cultivated tulips occasionally produce striking mutations, caused by a virus, which enhance their speculative interest. A grower would anxiously scan his garden for such a “break,” as it was called; the bloom, then called “rectified,” could, if beautiful, expect ready buyers, who would propagate and resell it at high prices, just as the sire of a Kentucky Derby winner today can command a huge figure from a stud farm. A yellowish stem base (called a “stained bottom”) or a badly formed flower will be discarded; the perfect ones become “breeders.”
By the early 1620s excitement over tulips and their mutations had reached Holland, and the rarest specimens were selling for thousands of florins. By degrees the madness spread from a handful of enthusiasts to permeate the whole of Dutch society. Soon virtually all houses had their tulip fields, filling every inch of Holland’s available surface.
Originally, sales occurred over the winter. A speculator might take some specimens and a supply of bulbs to one of the inns frequented by the confrerie of tulip traders. There he could exchange his “Admiral Tromp,” purchased for five hundred florins, plus another two hundred florins in cash, for a “General Bol,” which he would hope to sell within the week for a thousand. By 1634 every level of society had succumbed to this excitement, from laborers to the nobility, and soon deals were being conducted all year round, for delivery the following spring. What we call “put” and “call” options were invented and widely traded. Often the speculator had no intention of actually acquiring possession of what he had bought; rather, he expected to resell his contract promptly at a profit to some later enthusiast. This was called windhandel—trading air.
Tulips in seventeenth-century Holland presented even more problems than commodities today, since there was no member firm to stand behind the contract, and whoever finally did take delivery, often many months later, of a particular bulb could not even be sure, until it actually bloomed, that he had received what the contract specified To cope with this activity, new laws were promulgated, special tulip notaries were created, and special areas designated where the trade was to be carried out
As the frenzy mounted, other economic activity slowed, m prices mounted giddily. Estates were mortgaged to permit their owners to participate in the constant rise of tulip prices; new buying power pushed prices up further. One “Viceroy” bulb sold for four oxen, eight pigs, twelve sheep, four loads of rye two of wheat, two hogsheads of wine and four barrels of beer two barrels of butter and half a ton of cheese, together with a quantity of house furnishings. A “Semper Augustus”—with vertical red and white stripes over a bluish inner hue—sold for about twice that value in cash, plus a carriage and hones. The Dutch became convinced that not only other Dutch speculators but also foreigners would pay ever-rising prices. Indeed, at one point a single rare bulb was given in France as full payment for a successful brewery.
One story illustrates the temper of those days. A shoemaker of The Hague, in the little plot that almost every Dutch household by this time had dedicated to tulip raising, finally managed to grow a black flower. He was visited by some growers from Haarlem, to whom he sold his treasure for 1,500 florins. Immediately one of them dropped it to the floor and stamped on it until it was ground to pulp. The cobbler was aghast. The buyers explained that they, too, possessed a black tulip, and had destroyed his to protect the uniqueness of their own. They would have paid anything: 10,000 florins, if necessary. The heartbroken cobbler is said to have died of chagrin.
But trees do not grow up to the sky, and the reckoning inevitably came. When these crazy price levels finally cracked the entire economic life of Holland crumbled. Lawsuits were so numerous that the courts could not handle them.
Many great families were ruined, fine old merchant firms were thrown down, and it was years before commercial life in Holland recovered. The Tulpenwoerde had seared the Dutch soul, and in the centuries since there has been no recurrence.