What Was Tulip Mania?

What Was Tulip Mania?

By: Verified Investing
What Was Tulip Mania?

Have you heard of Tulip Mania? It’s an old term for describing a speculative hysteria that pushes the prices of the asset in question to unsustainable levels. The original Tulip Mania was the first recorded speculative bubble in history, occurring in the Netherlands between the 1590s and 1640. At its height in 1636, the rarest tulip bulbs were selling for the same price as a nice house on the Amsterdam Canal.

The Mania ruined the lives of thousands of people, but the sophisticated tulip growing methods became the basis for one of the defining industries of the Netherlands.

How Was Tulip Mania Possible?

The uniqueness of the Dutch economy made Tulip Mania possible. Thanks to extensive trade networks and an open market economy, the Netherlands had the highest standard of living in Europe in the 17th century. Half of European commerce passed through Dutch ports, and the Dutch merchant fleet was larger than the rest of Europe’s put together. This position of wealth and power sparked the Dutch Golden Age, which spanned from 1588 to 1672. The desire for the finer things in life and the pursuit of profit during this time were fertile ground for speculation in new and exotic rarities - like tulips.

The Origins of Tulip Mania

The Origins of Tulip Mania

Tulips were introduced to the Netherlands in the late 16th century from bulbs brought back from the Ottoman Empire. They first came to public prominence in 1593 when horticulturist Carolus Clusius planted tulips in his private garden at the Leiden Botanical Garden and found they could survive the weather in the Low Countries.

The delicate flower's intense color and symmetrical, cup-like shape was unlike anything seen in Europe before. The fascination with tulips rapidly made them a status symbol of the Dutch upper class and affluent merchants.

The Start of the Tulip Boom

The cachet of owning tulips spread to the Dutch middle class. Anyone who was someone had fresh tulips displayed in pride of place in their homes. The obsession with new varieties prompted selective breeding to develop new strains with new colors, which commanded phenomenal prices during the height of the boom. Tulips became a major Dutch export, with France being the largest market.

A major breakthrough in tulip cultivation was the discovery of “broken bulb” varieties. These tulips had multiple colors and were very difficult to raise. It wasn’t until much later that it was discovered that a virus transmitted by aphids was responsible for some tulips developing striped blooms. The same virus weakened the tulip’s ability to propagate from the bulb, which eventually led to the extinction of some of the most prized and expensive tulip varieties.

Tulip Mania Hits High Gear

Tulip Mania Hits High Gear

By 1634, speculators and bulb flippers had taken over the Dutch tulip market. A rare tulip bulb could be bought and sold ten times in a single day for escalating prices, with no guarantee that it would grow. Tulips became a major part of the Dutch economy, growing to be the 4th-largest export of the Netherlands, behind herring, cheese, and gin.

A large tulip futures market was established, with trading occurring in thousands of taverns in Haarlem and other major cities. Previously, tulip futures were only used by florists to secure stock at the end of the growing season, but frenzied speculators overran the futures market, purchasing leveraged contracts that were sometimes resold multiple times a day.

Peak Tulip Mania

Tulip Mania reached its climax in late 1636. People were selling everything they owned to buy tulip bulbs to resell. Rare tulip bulbs were selling for thousands of dollars each, while others were being bought and sold in bars. By November, tulip prices were rising nearly vertically on the daily charts, with the prices of the rarest bulbs rising by multiples in a few weeks.

Tulip Crash

In December 1636, tulip price appreciation began to moderate. By January, prices began to plateau. It was then that a bumper crop of tulip bulbs hit the market. Tulip growers had planted as many tulips as possible when the mania first hit and caused a shortage. Those crops had matured and were ready for sale just as most buyers had been priced out of the market and demand was falling.

Many people believe that a widespread panic was triggered after a major tulip auction in Haarlem on February 3rd failed to find any buyers. The resulting flash crash spread nationwide within days, as buyers refused to honor contracts purchased when prices were ten times what they were now worth. Sellers feverishly unloaded their previously invaluable bulbs for whatever price they could get.

Tulip growers in Utrecht met on February 7th to elect representatives to a national assembly to address the crisis. Prices continued to plummet throughout the spring, falling faster than they had risen during the heady days of 1636. By 1638, tulip prices had crashed by 95% and thousands of people who had borrowed money or mortgaged their homes and estates to buy tulips were ruined.

The Dutch government considered forcing speculators to honor their contracts but settled on unloading the problem on the municipal courts. The courts began dismissing the lawsuits under the premise that gambling debts were not enforceable by law.

Famous Tulip Prices

The reported prices for rare bulbs during the Tulip Mania seem incredible. Some of the more celebrated transactions include:

  • A “flourishing” brewery in France in exchange for one Tulipe Brasserie bulb.
  • A single Semper Augustus” broken bulb tulip was sold for 5,500 florins. A florin contained 0.77 grams of gold. 5,500 florins had 4,235 gr of gold content. At $2,350/oz, this bulb sold for $319,976.
  • In comparison, Rembrandt earned 1,600 fl for his famous painting The Night Watch.
  • Three Semper Augustus bulbs were sold for 30,000 fl—triple the price of a mansion on Amsterdam’s posh Grand Canal, including a coach house and 80-foot garden.
  • Many thousands of bulbs sold for the equivalent of a decade’s wages for a skilled craftsman. A carpenter could earn 250 fl a year. A master carpenter in Alkmaar made about 438 fl a year. A successful merchant might make between 1,000 and 1,500 fl per year. Carolus Clusius, who introduced tulips to the Netherlands, made 750 fl a year at the University of Leiden.
  • In terms of “price per ounce” the most expensive tulip bulb in the world was an Admirael Liefkens weighing 1/10 of an ounce that sold for 1,015 fl. Gold was valued at 37 fl per ounce then, but this bulb sold for 10,150 fl per ounce – more than 274 times greater than gold.
Sponsor