On this day in 1637: The tulip bubble bursts
Tulip fever is still remembered as a parable about the evils of capitalism and mass hysteria, but what really happened? Asks Eliot Wilson
It is one of those half-remembered, quarter-understood facts to illustrate the ineffable foolishness of human nature. In the first half of the 17th century, the zenith of the Dutch Golden Age, the small but prosperous, hard-working, commercially savvy population of the United Provinces of the Netherlands had achieved extraordinary prosperity. They enjoyed a monopoly on the spice trade and were making inroads into Portugal’s trade in sugar.
Material wealth jaded the palette as it always does. One fascination the Dutch merchant classes developed was for tulips. The first bulbs of these brightly coloured exotic flowers arrived in Amsterdam and Antwerp towards the end of the 16th century, probably from the Anatolian heartland of the Ottoman Empire. Fascination overheated into obsession, the prices a tulip could command spiralled out of any reasonable sense of genuine value, and in the mid-1630s tulip mania became the first recorded asset bubble in commercial history.
The stern Calvinist ministers of Amsterdam’s Oude Kerk (old church) could scarcely have asked for a better morality tale. Tulip mania also has a delightfully delicate but semi-serious tinge to it, matching high finance and dark-suited burghers with extravagantly coloured blooms.
But what really happened?
Tulips did become coveted symbols of wealth and status in the 17th century Netherlands. Pioneering botanist Carolus Clusius, a professor at the University of Leiden, had been appointed prefect of its Hortus Botanicus in 1590 and proved that the plants would grow in the climate of the Low Countries, boosting their popularity.
The tulip was unlike any other flower known in Europe because of the intensely saturated colour of its petals. There were four main groups: the single-hued Couleren in red, yellow or white; red or pink white-streaked Rosen; Violetten, with white marks of a purple or lilac background; and the rarest and most prized category of Bizarden, red, brown or purple blooms with streaks of yellow or white.
The flowers only bloom for a week or so in April and May, but in summer tulip bulbs can be uprooted and moved. This made them relatively durable goods which were grist to the mill of the sophisticated financial instruments of the Dutch Golden Age. Purchasing in the spot market took place between June and September; during the rest of the year, tulip traders signed forward contracts witnessed by notaries to buy bulbs by the end of the season.
The Night Watch
Prices rose, and in 1634 speculators began to come into the market. Soon single bulbs were worth hundreds of guilders: when Rembrandt was commissioned to paint The Night Watch in 1639, he was paid 1,600 guilders, at that time a huge sum for a painting. Crucially, however, this was a trade in contracts to purchase, known in Dutch as windhandel (literally “wind trade”) – no bulbs or flowers were actually changing hands. The pace of trading was relentless, and by 1636 contracts could be bought and sold 10 times in a day.
Contracts spiralled in price so long as purchasers believed they could make a profit from onward sale. Exact values are hard to establish; in 1635, 40 bulbs are recorded as having been sold for 100,000 guilders, which was 300-600 times the annual earnings of a skilled labourer. At the peak of the mania, a single bulb of the rare red and white “Semper Augustus” supposedly attracted a value of 10,000 guilders, which would have purchased a grand house on one of Amsterdam’s canals.
This speculative market could only last as long as there was the prospect of the bulbs eventually being bought. On 3 February 1637, the boom encountered its first major, fatal setback. At a tavern in Haarlem, an auctioneer suddenly failed to find buyers. He lowered his asking prices several times, but could not conclude a sale.
The auction in Haarlem sounded the alarm. Liquidity dried up almost instantly, no-one wanted to buy contracts for flowers that would not find a market and heavily leveraged speculators, left with suddenly worthless equity, panicked. There were fire sales as investors desperately tried to recover any money they possibly could, but many were able to realise only five per cent or less of what they had paid.
Forward contracts were effectively unenforceable. The States General had banned short selling in 1610 but the edict had been widely ignored. After the tulip bubble burst, it was largely left to the parties involved to resolve individual disputes, and many buyers refused to abide by their obligations.
Scottish journalist Charles Mackay’s Extraordinary Popular Delusions and the Madness of Crowds (1841), an enormously successful work describing crowd psychology, brought the story to a new audience. Mackay mythologised tulip mania as an archetype of mass irrationality, and his portrayal remains influential to this day. But many aspects of the episode were exaggerated; he called it “a golden bait hung temptingly out before the people” and concluded that “the commerce of the country suffered a severe shock, from which it was many years ere it recovered”.
Except… the evidence suggests it did nothing of the kind. Those involved in the speculation were few in number and almost exclusively merchants and better-off skilled craftsmen. In many cases no money actually changed hands so only theoretical profits were lost. Anne Goldgar, author of 2007’s Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age, failed to find a single case of bankruptcy attributable to the tulip trade.
The bubble was not wholly imagined. The mass repudiation of forward contracts undermined confidence in the financial system: for decades merchants had operated on the assumption that windhandel agreements would be honoured, because to renege carried too high a price in reputation and social standing. But it was not a body blow to Dutch capitalism.
Why does the story of the tulip mania bubble still endure? It goes back to those Calvinist ministers. There was a deep anxiety that Dutch society, as it became more prosperous, was also growing more godless. Luxury and ease were eating away at the sober fabric of life. So the stutter in a frivolous trade in tulips was seized upon, satirised and demonised until it was a chiaroscuro as dramatic as anything Rembrandt had painted. A mania, a fever, a madness for profit: the crash was the avenging angel invoked by Calvinists. But it was largely a myth. If there had been an angel, the Netherlands was barely brushed by the tips of its wings.
Eliot Wilson is an author and historian