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Early buyers were people who truly prized the
lovely flowers, but it wasn't long before speculators got invovled
and many buyers were merely in for the money. They created trading
activity, and eventually tulip bulbs were placed onto the local
market exchanges. By 1634, the demand to own tulips had spread from
the wealthy class into the middle classes of Dutch society.
Merchants and shopkeepers began to vie with one and another for
single tulip bulbs.
How bad was it? It was so bad... it was so bad
that at the height of the tulip bulb bubble in 1635, a single tulip
bulb was sold for the following items:
four tons of wheat
eight tons of rye
one bed
four oxen
eight pigs
12 sheep
one suit of clothes
two casks of wine
four tons of beer
two tons of butter
1,000 pounds of cheese
one silver drinking cup.
The present day value of all these items comes to
nearly $40,000! For a single tulip bulb we don't even know the color
of. Things became so bizarre that people were selling everything
they owned their homes, their livestock, everything to buy
single bulbs on the expectation that the bulbs would continue to
grow in value.
By 1636, tulips were established on the Amsterdam
stock exchange to accomodate the speculators and gamblers who had
become the primary purchasers of tulip bulbs.
Tulip notaries and clerks were appointed to
record transactions, and public laws and regulations were developed
to control the craze. Late in 1636, a few tulip owners began to
liquidate their holdings. At first prices began to weaken slowely,
then more rapidly as confidence was destroyed. By then panic seized
the market.
Within six weeks, tulip prices crashed by 90%.
Defaults on contracts and liens on owners were widespread and the
Dutch government refused to interfere. Instead, it simply advised
tulip holders to agree among themselves on some plan to stabilize
prices and restore public confidence. Eventually assembled deputies
in Amsterdam declared null and void all contracts that were made at
the height of the mania, these were the ones made prior to November
1636. Tulip contracts made after November 1636 were settled if
buyers paid merely 10% of the prices to which they had earlier
agreed.
Tulip prices continued to fall. Next, the
provincial council in the Hague was asked to invent some measure to
stabilize tulip prices and public credit. Tulip prices continued to
fal. In Amsterdam, judges regarded tulip contracts as gambling
activities and court rules held that gambling debts were not debts
in the eyes of the law. No court in Holland would enforce payment.
Tulip collectors, speculators, and gamblers who had tulips at the
time of the collapse were left with ruinous losses.
Tulip prices soon plunged past the present
equivalent of a dollar each. Is it possible for you to imagine
buying an investment for $76,000, only to discover six weeks later
that it was worth no more than one dollar? Commerce in Holland
suffered a severe shock it did not recover from for many years.
Now I know you are thinking "What kind of fool
would possibly get caught up in that? I understand, were talking
TULIPS here not food, shelter, clothing, or firearms! TULIPS! What
could cause people to lose such control of their senses?
I believe the answer is greed. Instead of
building the value of their portfolios carefully and with
understanding, they went for the quick buck. As long as it looked
like the sky was the limit, nobody wanted to accept the fact that
they were buying very expensive tulip bulbs.
Do you think people are too smart to fall for
this kind of speculative risk today? Do you remember the Internet
Craze of the late 90's? Otherwise how about these great investment
words: Beanie Baby.
Roger Sorensen
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The
Tulip Bulb Mania - Extraordinary Popular Delusions And The Madness Of
Crowds