Tulipmania – Tulip bulb bubble and lessons for a modern time

It all began in 1593 when a Dutch importer Conrad Guestner carried back from Constantinople the first tulipimage bulb from what is now present day Turkey. The exotic flowers became an instant hit and within a few years has established themselves as a status symbol amongst the Dutch elite.   The desire and need to have tulip bulbs eventually spread to neighboring Germany as well.

Cross pollination and genetic manipulation amongst the growing number of Dutch tulip bulb farmers began creating rare strains that became competitive prizes, much like fine wines are today.   At one point a harmless virus attacked the tulip bulbs and created new and even more pleasing mutations.  These "fiery"  mutated tulips were harder to grow and posses making them the absolute "must have" variants for the exclusive crowd.image

Eventually the desire for tulip bulbs work its way into the middle class and now a true high volume commodity market for tulip bulbs existed but the supply was still under pacing the demand and prices were still soaring.  Speculators joined in and began a futures market much like today modern futures market allowing buyer and seller to secure bulbs at future dates.  This speculation increased the pricing still further more as people began selling their land in order to take advantage of price escalation in the forming tulip bubble.

In a single month in the midst of the bubble the price of bulbs grew 2000%.  That was a return that no a lot of people could resist.  At its height some bulbs were worth more than a house.  Most of the bulbs being traded now were never going to be planted but simply represented a potential worth.

Like all bubbles the tulip bubble burst and many were left desolate with just a bag full of tulips.  The lessons from the tulip bubble are repeated over and over again in financial markets.  The study of tulipmania should be required for all consumers so that they can learn to relate and recognize the many bubbles they see during their lifetime.  Whether they are micro-bubbles like the Tickle Me Elmo Christmas bubble or the great housing bubble of 2000.  Bubbles always burst end badly for those holding too long.

Charles Mackay wrote a complete account of the tulip bulb bubble "Tulipmania – Desciption of the Tulip Bulb Bubble". Although written in the mid 1800’s it is a great read today.  Read, digest and learn the psychology around bubbles.

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