Following their introduction to Europe from Constantinople in the mid-16th Century, tulips soon became highly sought-after, most particularly in the Dutch Republic, such that some wealthy people ordered them directly from Constantinople. Demand became so irrationally great that they created a market bubble, now known as ‘tulipmania’. However, contrary to the popular belief that this precipitated an economic crash across the whole of the Dutch Republic, the bubble was limited in size and scope.
Nevertheless, tulips were the object of immense curiosity. As interest surrounding them increased, so did the desire for more aesthetic flowers. Of particular interest were so-called ‘broken tulips’, whose petals created flame-like patterns and bore a wider range of colours. These variegations, however, were the result of a virus, with the implication that they could not be kept alive for very long. Despite this, the popularity of these more eclectic flowers was not dampened; if anything, it increased, with tulip growers vying to produce the most variegations. As Charles Mackay wrote in his Extraordinary Popular Delusions and the Madness of Crowds, “Many persons grow insensibly attached to that which gives them a great deal of trouble [i.e., the tulips].”
According to Mackay, whose account of tulipmania was the main source of popular ideas around the movement, so imprudent was the demand for tulips that, by 1634, “the ordinary industry of the country was neglected, and the population, even to its lowest dregs, embarked in the tulip trade”. Dutch individuals of every class, from chimney sweepers to the wealthiest merchants were supposed to be involved in the tulip trade.
The money involved quickly became exorbitant. The most expensive and precious species of the time was the semper augustus, so rare that there were thought to be only two in the whole country. One alone was “sold for more than the cost of a mansion in a fashionable Amsterdam neighbourhood, complete with coach and garden”. Rembrandt bought a large home in central Amsterdam in 1639 – only two years after the market collapsed – for 13,000 florins, and yet there were reports of 40 bulbs selling for 100,000 florins (as much as $6m today), almost eight times as much.
Mackay also reported the story of a sailor who mistook a valuable tulip bulb for an onion and put it on his sandwich. So extreme was the craze that, for this error, the sailor was charged with a felony and imprisoned for months.
As tulip bulbs skyrocketed in price, speculators began to enter the markets. As soon as 1636, trade centres for their sale were introduced to the Stock Exchange of Amsterdam. Those who had no interest in the flowers themselves were now gambling on the price, with a futures market developing to buy and sell not tulips but the right to buy them at a later date.
It was at this point the market supposedly spiralled out of control. Fortunes were made and lost overnight. People from all echelons of society liquidated their property, selling them for precariously low prices, in a frantic attempt to invest their money in tulips. Mackay even claimed that foreigners “became smitten with the same frenzy” and money from all over the world poured into the Dutch economy. The tulip trade became so extensive that a code of laws was drawn up to regulate the market.
By February 1637, some of the wiser investors realised that the tulip trade was not sustainable. This sentiment spread like wildfire. Confidence in the market plummeted; contract breakdowns on the aforementioned tulip futures became widespread. When the market did crash, Mackay claimed it left the poor and the rich alike in ruins. “Many who for a brief season emerged from the humbler walks of life were cast back into their original obscurity.” Supposedly, hapless businessmen committed suicide by throwing themselves into the canals of Amsterdam, having been “reduced almost to beggary”.
Mackay’s account of tulipmania was unchallenged for years. However, in 2007 Anne Goldgar put forward a more convincing argument in Tulipmania: Money, Honour and Knowledge in the Dutch Golden Age. For one, Mackay’s tales of the event are far from the truth. He was himself writing two centuries out from the fact in 1841, and so his stories of traders jumping into the canals to their deaths, or of the sailor who ate a tulip bulb, were likely little more than urban legends.
This is not to say that Mackay was entirely wrong. Goldgar’s evidence suggests there was a tulip trade in the 1630s, in which certain tulips did indeed sell for prices not dissimilar to the value of some canal houses. However, Goldgar suggests that these prices were outliers and not reflective of the entire market. In fact, she only found 37 people to have paid more than 300 florins (around $18,000) for a single tulip.
Goldgar also identified a decline in their value which did cause buyers to reject their contracts, but rather than causing an economic recession, Goldgar believes this damaged trust within Dutch society. Usually, a buyer of a tulip would have to pay a fine to a seller for breaking the contract between the two parties. However, when tulip prices entered a steep decline, these fines were abandoned.
Perhaps the most important distinction between the two’s accounts is the scope of tulipmania’s effects. Goldgar found around 350 people involved in the trade, in stark contrast to Mackay’s claim it affected society “down to its lowest dregs.” Crucially, there was no wider economic recession as a result of the trade, and the effects on the traders themselves were far more minor than what Mackay proposed: indeed, Goldgar could not find a single person that went bankrupt.
Tulipmania has, for some, become the quintessential historical example of market bubbles. While tulipmania was a real historical event, the details put forward by Mackay were wrong. Its usefulness as a historical reference is therefore limited.
Goldgar, A., 2007. Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age. Chicago University Press.
Hirschey, Mark. “How Much Is a Tulip Worth?” Financial Analysts Journal 54, no. 4 (1998): 11–17. http://www.jstor.org/stable/4480088.
Mackay, C., 1841. Extraordinary Popular Delusions and the Madness of Crowds. Richard Bentley, London. https://www.gutenberg.org/files/636/636-h/636-h.htm#link2H_4_0005