The First Recorded Speculative Bubble: Tulipmania

Tulips

It certainly feels like tumultuous times…. in the past century we have gone through stock market bubbles, real estate bubbles, and the dot com bubble. When will we ever learn?

Now imagine instead of losing your fortune to speculation on stocks, you lose it by being duped by the tulip market. In the 15th century, the tulip was brought to the Netherlands from Constantinople where it was stolen and sold to the open market. Over the next three decades, tulips became a fad and the price skyrocketed.

Soon, tulip traders deemed it too risky to plant the bulb, instead displaying the orb-shaped seed. The height of the bubble was reached in 1936-37. Traders could make 60,000 florins a month- approximately $61,710 current USD.  With the potential for this level of profits, the market was flooded with new entrants and the supply caught up with demand.

One day, a buyer in Haarlem, Holland failed to show and panic ensued. Tulips were now worth 1/100 the price of the previous day.  As it happens in many speculative bubbles, some prudent people decided to sell and crystallize their profits. The tulip bubble had burst.

Its bulb cost between 3,000 and 4,150 guilders (florins) depending on size. A skilled craftsman at the time earned about 300 guilders a year.

Its bulb cost between 3,000 and 4,150 guilders (florins) depending on size. A skilled craftsman at the time earned about 300 guilders a year.

Now an event that occurred 376 years ago surely won’t be repeated. We learn from the past- yes? Isn’t that what history class is all about.. not repeating past mistakes. Greed and thoughtless 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.

 

 

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    Jessie

    Jessie

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