Tulips Cost More Than Houses During Dutch "Tulip Mania"

If you had to spend a huge sum of money on one thing, would you choose a luxury mansion or a single tulip bulb? You might be surprised how a Dutchman in the 1630s would have answered that question. "Tulip mania," as it's called, was the most notorious speculative bubble in history. By one account, tulip prices soared 20-fold in just six months before plunging 99 percent in half that time. The story might sound ridiculous, but it wasn't the world's biggest bubble burst — or the last.

Everything's Coming Up Tulips

In the 16th century, tulips were among the most prized flowers and status symbols in the Ottoman Empire. The tulip was originally found in Turkey, Persia, and other Islamic countries, where it was commonly cultivated in royal gardens, and it was introduced to Western Europe in 1593. There, collectors assigned values to tulip varieties based on their species and coloring. The new flower's novelty made it fairly pricey, so the bulbs garnered the most interest from the wealthy.

The heart of tulip mania came from "broken" tulips. Those were flowers that boasted vibrant lines and flame-like streaks rather than a single color, making them look even more vivid and exotic. Ironically, the "breaking" was a result of contracting a tulip-specific mosaic virus, though the reason for the coloration wasn't discovered until centuries later. These particularly beautiful broken bulbs were what garnered the astronomically high market prices during this period.

For such an expensive flower, tulips had arrived in the right place at the right time: the Dutch Golden Age. Growing global trade had helped the Netherlands become one of the wealthiest countries in Europe, complete with rich aristocrats and a growing middle class. Anne Goldgar, author of "Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age,"* wrote that everyone in the country seemed to be talking about tulips during this time, "enthralled by a sudden vision of its profitability." And that's where the trouble started.

Bubble, Bubble, Flowers And Trouble

A speculative bubble, also known as a price bubble, asset bubble, or financial bubble, generally refers to a situation where the price for something exceeds its fundamental value by a huge margin. That's hardly ever good: Historically, most bubbles have been followed by a spectacular crash in that item's price.

Tulip mania followed every step of this process. Author and historian Mike Dash told the BBC that by the first month of 1637, a single bulb of Semper Augustus cost enough to "feed, clothe and house a whole Dutch family for half a lifetime," or "purchase one of the grandest homes on the most fashionable canal in Amsterdam for cash, complete with a coach house and an 80-foot garden."

And then, the inevitable struck: Investors lost track of their rational expectations, their psychological biases led to an excessive price surge, they realized that they had paid thousands of dollars for tulips, and everybody sold. The massive sell-off collapsed prices, and many investors were left in poor financial shape.

Not the Brightest Bulbs in the Box

How did the Dutch economy recover? According to Goldgar, there wasn't much to recover from. "There weren't that many people involved and the economic repercussions were pretty minor," she told "I couldn't find anybody that went bankrupt." So why is tulip mania referenced so often as "history's biggest bubble" today? Propaganda. While the market did fall apart and cause a small crisis, the scale was blown out of proportion by Christian moralists: The tales of full-blown economic ruin came from propaganda pamphlets distributed by Dutch Calvinists, who worried that the tulip boom would lead to societal decay.

Tulip mania wasn't nearly as devastating as many more recent bubbles. Japan's asset price bubble collapse in the 1990s led to a "lost decade" of economic stagnation, the dot-com bubble from 1997-2001 led to widespread tech industry layoffs and trillions of dollars in lost wealth, and the U.S. housing bubble collapsed retail spending and led to the "Great Recession" from 2007-2009. The factors leading up to these bubbles were complex, but many ignored the warning signs. Next time, just remember: If you're going to buy a tulip, maybe don't trade your house for it.

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Inflation and Bubbles and Tulips

Written by Cody Gough January 22, 2018

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