The Great Tulip Bubble

“For do I now persuade men, or God? Or do I seek to please men? For if I yet sought to please men, I should not be the servant of Christ.” — Galatians 1:10 (KJ21)

The time of Easter is a time for renewal and redemption in the Christian World. It is also a time of renewal for nature as spring brings new growth to the planet. It is a time for tulips.

The tulip is a perennial, bulbous plant with showy flowers in the genus Tulipa, of which up to 109 species have been described and which belongs to the family Liliaceae. The genus's native range extends from as far west as Southern Europe, Anatolia (Turkey), Israel, Palestine, North Africa, and Iran to the Northwest of China. The tulip's center of diversity is in the Pamir, Hindu Kush, and Tien Shan mountains. A number of species and many hybrid cultivars are grown in gardens, as potted plants, or to display as fresh-cut flowers. Most cultivars of tulip are derived from Tulipa gesneriana. [Source-Wikipedia]

Okay the above is the official definition of this beautiful spring flower, but now it’s time for the story of the Great Tulip Bubble.

Like the housing bubble and other similar bubbles the Great Tulip Bubble was created by speculators and people who thought they could make a killing from tulips.

It al began when the Spanish discovered great qualities of silver in the Andes Mountains of South America in 1545. Once the Spanish chemists learned how to refine this South American silver by using cobalt rather than the traditional mercury the boom in Spanish silver began. The Spanish conquest of the New World led to mining of  silver  that dramatically eclipsed anything that had come before that time. Between 1500 and 1800, Bolivia, Peru and Mexico accounted for over 85 percent of world production and trade.

The Spanish began minting the silver into coins where the mines were and shipping them back to Spain on their galleons. These coins were known as the Spanish Dollar or “pieces of eight” and they became the first universal currency. This universal currency opened vast amounts of trade across the world and allowed The Netherlands to become a great commercial center due to their mercantile and shipping proficiency and allowed the Dutch to break the monopoly in the Baltic States held by the Hanseatic League. Amsterdam became one of the greatest commercial cities of the world and the Dutch citizenry grew in wealth. They became so wealthy that they began looking for other things to invest in. They were looking for something of beauty that the people wanted and tulips looked like a sure thing.

Tulips have long held a significant role in Dutch history and culture ever since they were introduced to the Netherlands from the Ottoman Empire in the mid-1500s. So strong was the Dutch love affair with tulips during the Dutch Golden Age of the mid-1600s that a tulip bulb bubble or "Tulip Mania" even occurred. Generally considered to be the first recorded financial bubble, the Tulip Mania of 1636-1637 was an episode in which tulip bulb prices were propelled by speculators to incredible heights before collapsing and plunging the Dutch economy into a severe crisis that lasted for many years.

The Golden Century is the name of the period in Dutch history between 1600 and 1700 when the port city of Amsterdam was one of the richest of all cities in Western Europe due to its strong role in international trade. Trading companies such as the VOC (Verenigde Oost-Indische Compagnie), commonly known as the Dutch East India Company, became dominant players in the Netherlands’ trade with Indonesia and other far-away lands. Amsterdam’s booming economy led to a flourishing of the arts and architecture, as well as trade in blue glass, china and other luxury goods.

Dutch trade with foreign lands led to the importation of exotic goods that were never seen before by Europeans. Tulips were first introduced to Europe from Turkey when a sultan sent bulbs and seeds to Vienna. Shortly after 1554, these seeds were sent to Amsterdam, where their popularity began to rise. A university study in 1593 led to the discovery that tulips could withstand the harsh northern-European climate, which further boosted their desirability in the Netherlands. With their intensely colorful petals, tulips were unlike any other flower popular in Europe at that time and having tulips growing in one’s garden became an important status symbol.

Tulip plants originate in the form of tulip bulbs which do not flower until seven to twelve years later. Between April and May, tulips bloom for about one week, with bulbs appearing between June and September, thus confining Dutch sales to that season. A rudimentary derivatives market, similar to modern-day options and futures contracts, eventually arose so that traders could conduct trade in tulips all year round. Traders entered into tulip contracts by signing contracts for future tulip purchases before a notary. The very active tulip contract market eventually became an integral part of the overall booming Dutch tulip industry.

As the Dutch tulip market became increasingly sophisticated, tulips were classified into groups and priced according to their rarity. In general, solid-colored tulips were worth less than those with multiple colors. Couleren was the classification for solid-colored red, white, or yellow tulips, rosen referred to multi-colored tulips, often red, pink, or white and violetten described the white tulips with purple or lilac on them. Bizarden were the most popular tulips, with a yellow background and red, brown, or purple coloration. Tulips that were infected with the benign mosaic virus, which caused "flames" of color to appear upon the petals, sold at a premium due to their unique beauty and rarity

Tulip prices steadily rose with their growing popularity and bulbs were purchased at higher and higher prices by speculators who planned to turn around and sell them for a profit, similar to modern-day house "flippers." From 1634 to 1637, an index of Dutch tulip prices (see chart below) soared from approximately one guilder per bulb to a lofty sixty guilders per bulb. Traders who sold their bulbs for a profit began to reinvest all of their profit into new tulip bulb contracts or new bulbs to sell to other Dutch citizens or to take with them on trips around the world to sell alongside with spices from the Dutch East India Company. Many merchants sold all of their belongings to purchase a few tulip bulbs for the purpose of cultivating and selling them for more profit than they could have ever made in a lifetime as a merchant. As the tulip bulb bubble crescendoed, already pricey tulip bulbs experienced a twentyfold price explosion in just a single month By the peak of tulip mania in February of 1637, a single tulip bulb was worth about ten times a craftsman’s annual income and a single Viceroy tulip bulb was allegedly exchanged for the following goods.

• Two lasts of wheat
• Four lasts of rye
• Four fat oxen
• Eight fat swine
• Twelve fat sheep
• Two hogsheads of wine
• Four tuns of beer
• Two tons of butter
• 1,000 lb. of cheese
• A complete bed
• A suit of clothes
• A silver drinking cup

Successful Dutch tulip bulb traders, the archaic counterparts to the day traders of the late 1990s Dot-com bubble and the house flippers of the mid-2000s U.S. housing bubble, could earn up to 60,000 florins in a month– approximately $61,710 in current U.S. dollars. Tulip bulb speculation became so widespread by 1636 that they were traded on Amsterdam’s Stock Exchange and in Rotterdam, Haarlem, Leyden, Alkmaar, Hoorn, and other towns. Around the same time, tulip speculation even spread to Paris and England, where tulips were traded on the London Stock Exchange. In both cities, traders strove to push tulip prices up to the lofty levels seen in Amsterdam but were only moderately successful in their attempt.

Astronomically-high tulip bulb prices resulted in some equally astonishing anecdotes such as the sailor who mistakenly ate an extremely rare Semper Augustus tulip bulb thinking it was an onion. This "onion" was so valuable that it could have fed his whole ship’s crew for an entire year. The hapless sailor was jailed for several months for his innocent but costly mistake. Another similar anecdote is of a traveling English botanist who was unaware of the Dutch tulip mania of the time, who peeled and dissected a wealthy Dutchman’s four thousand florin Admiral Von der Eyk tulip bulb mistaking it for an unusual species of onion. The bewildered English traveler was quickly led through the streets, followed by a mob, to be brought before a judge who sentenced him to prison until he could pay for the damage.

Like all bubbles, the Dutch tulip bulb bubble continued to inflate beyond people’s wildest expectations until it abruptly "popped" in the winter of 1636-37. A default on a tulip bulb contract by a buyer in Haarlem was the main bubble-popping catalyst and caused the tulip bulb market to violently implode as sellers overwhelmed the market and buyers virtually disappeared altogether. Some traders attempted to support prices, to no avail. Within just a few days, tulip bulbs were worth only a hundredth of their former prices, resulting in a full-blown panic throughout Holland. Dealers refused to honor contracts, further damaging confidence in the tulip bulb market. Eventually, the government attempted to stem the tulip market meltdown by offering to honor contracts at 10% of their face value, which only caused the market to plunge even further. The brutal popping of the tulip bulb bubble ended the Dutch Golden Age and hurled the country into a mild economic depression that lasted for several years. The traumatic tulip bulb crash resulted in a suspicion toward speculative investments in Dutch culture for a very long time after. One also has to wonder if this is how the Dutch reputation for frugality arose!

Looking back through time it’s easy to laugh at the foolish Dutch, paying such prices for simple tulip bulbs, but an economic bubble was nothing new even then. We’re still doing the same sorts of things today. Human beings have always been prone to want things that are difficult to get, especially if everyone else seems to be doing it. Nutty behavior becomes commonplace when enough people are following along. It’s only afterwards that we stand back and shake our heads and wonder what came over us.

Tulips are without are my favorite flowers. While not having a distinct and pleasurable odor like roses or lilacs their variety of colors and delicate petals make them a sight for the eyes, especially when they are in fields and you a photographer.

One the world’s best places to view thousands of tulips is at Keukenhof Gardens in the Netherlands. Keukenhof Gardens are located near the little town of Lisse, just a short drive from Amsterdam. According to the official website for the Keukenhof Park, approximately 7,000,000 (seven million) flower bulbs are planted annually in the park, which covers an area of 32 hectares (79 acres). The gardens are open annually from mid-March to mid-May. The best time to view the tulips, however, is around mid-April, depending on the weather.

My wife a I visited Keukenhof Gardens in mid-May, 2004 and the tulips were in full bloom, but some of the fields had already harvested for their bulbs. It quite a sight to see fields of tulips arranged by color crawling over the gardens. The tulip may not be the investment it was once, but they are a beautiful sight to behold.

Some Photos from my visit the Keukenhof Gardens in 2004

You can view more photos by clicking here