Tulip mania wasn’t irrational. Tulips were a newish luxury product in a country rapidly expanding its wealth and trade networks.
Tulip mania wasn’t a frenzy, either. In fact, for much of the period trading was relatively calm, located in taverns and neighbourhoods rather than on the stock exchange. It also became increasingly organised, with companies set up in various towns to grow, buy, and sell, and committees of experts emerged to oversee the trade.
Prices could be high, but mostly they weren’t. Although it’s true that the most expensive tulips of all cost around 5,000 guilders (the price of a well-appointed house), I was able to identify only 37 people who spent more than 300 guilders on bulbs, around the yearly wage of a master craftsman. Many tulips were far cheaper.
When the crash came, it was not because of naive and uninformed people entering the market, but probably through fears of oversupply and the unsustainability of the great price rise in the first five weeks of 1637.
No one drowned themselves in canals. I found not a single bankrupt in these years who could be identified as someone dealt the fatal financial blow by tulip mania.
I don’t see it mentioned in that article but there was one thing I found pretty interesting about the tulips.
Earl Thompson, formerly of UCLA, takes a different approach. He reckons that the market for tulips was an efficient response to changing financial regulation—in particular, the anticipated government conversion of futures contracts into options contracts. This ruse was dreamt up by government officials, who themselves were keen to make a quick buck from the tulip trade.
I’d love to be able to dig up more info on that because that seems like a pretty significant point.
You can’t just ‘convert’ a future into an option.
Mania seems like an obvious result, brought on by dutch government officials?
What an interesting read! Thank you for sharing! And wow, didn’t realize futures/options has been around for THAT long.
Highlights for me: (sorry I like doing highlights because it’s easier for me to remember what points struck me, easier for learning also!)
He reckons that an outbreak of bubonic plague in Amsterdam made people less risk-averse.
Thompson argued that popular interpretations of tulipmania have failed to distinguish between options and futures. Tulipmania was only a contractual artifact. There was no “mania” at all.