Tulipomania Collapses

Tulipomania Collapses

After a rapidly precipitous and uncontrollable surge in demand on this day in 1637, tulip mania collapsed. It was perhaps the first speculative bubble in history.

It began in 1593, when Flemish botanist Charles de l’Ecluse (also known as Carolus Clusius) brought tulip bulbs from present-day Turkey to the Netherlands for research purposes. When l’Ecluse refused to share the exotic bulbs with admirers, the flower quickly became a coveted status symbol. The Dutch began growing the flora, which they classified into a complex stratum: the single-coloured red, white, or yellow tulips, called Couleren, were less prized. The multi-coloured Rosen, Violetten, or Bizarden, which featured vividly-striated petals, were most popular. As the popularity of these multi-coloured tulips grew, growers couldn’t keep up with the demand and so speculators entered the market.

In 1636, they created a system whereby traders could buy and sell contracts for the bulbs before they were even grown, an early futures market. People began trading anything—money, property, animals—for the bulbs. They had no intention to plant the bulbs, and the actual tulip bulbs often didn’t even trade hands—it had become a prized commodity that speculators were buying with the intention to sell at a profit. The Dutch even began to describe the tulip futures trading as windhandel, or “wind trade” because no bulbs were changing hands. Bulb prices rose steadily through the 1630s and peaked in late 1636 and early 1637. The mania drove Dutch traders to irrationality. A bulb’s value increased 20-fold from November 1636 to February 1637. At peak levels, a single tulip bulb could sell for more than 10 times the annual income of a skilled craftsman. One tulip bulb reportedly sold in February 1637 for 6,700 guilders, equivalent to the value of a house, coach, and property on Amsterdam’s most sought-after canal.

Suddenly, in February 1637, tulip mania collapsed. It began at a bulb auction in Haarlem, where people refused to pay inflated prices for the flowers. Suddenly, sellers couldn’t find buyers willing to pay exorbitant sums for the bulbs and people began liquidating what bulbs they could sell. As people realised that the bulbs’ value had been inflated, their value plummeted, panic ensued, and on 3 February 1637, the speculative bubble burst. In less than 6 weeks, tulip prices nosedived more than 90 percent, from a high of some $76,000 to less than $1. What had changed was traders’ psyches and the intrinsic value they placed—or chose not to place—in tulip bulbs. Tulipomania was to be the first of many such economic bubbles in global financial history.

Photo Credit: © D. Hurst / Alamy
Photo Caption: Tulipomania was perhaps the first speculative bubble in history.