Tulip mania (Tulipomania)
The term tulip mania or tulipomania is used to refer to any large economic bubble. It originates from 17th century during which demand for tulip bulbs in Netherlands reached such a peak that enormous prices were charged for a single bulb.
The tulip, introduced to Europe in the middle of the 16th century from Ottoman Turkey, experienced a strong growth in popularity in the today Netherlands. Tulip cultivation in the Netherlands is thought to have started in 1593, when Charles de L'Ecluse first bred tulips able to tolerate the harsher conditions. The flower rapidly became a coveted luxury item and a status symbol. Special breeds were given exotic names or named after Dutch naval admirals. The most spectacular and highly sought-after tulips had vivid colors, lines, and flames on the petals as a result of being infected with a tulip-specific virus known as the Tulip Breaking potyvirus.
In 1623, a single bulb of a famous tulip variety could cost as much as a thousand Dutch florins (the average yearly income at the time was 150 florins). Tulips were also exchanged for land, valuable livestock, and houses. Allegedly, a good trader could earn sixty thousand florins a month.
By 1635, a sale of 40 bulbs for 100,000 florins was recorded. By way of comparison, a ton of butter cost around 100 florins and "eight fat swine" 240 florins. A record was the sale of the most famous bulb, the Semper Augustus, for 6,000 florins in Haarlem.
At the height of tulipomania in 1635, a single tulip bulb was sold for the following items:
The present day value of all these items is nearly $35,000!
By 1636, tulips were traded on the stock exchanges of numerous Dutch towns and cities. This encouraged trading in tulips by all members of society, with many people selling or trading their other possessions in order to speculate in the tulip market. Some speculators made large profits as a result.
Some traders sold tulip bulbs that had only just been planted or those they intended to plant (in effect, tulip futures contracts). This phenomenon was dubbed windhandel, or "wind trade", and took place mostly in the taverns of small towns using an arcane slate system to indicate bid prices. A state edict from 1610 (well before the alleged bubble) made that trade illegal by refusing to enforce the contracts, but the legislation failed to curtail the activity.
In February 1637 tulip traders could no longer get inflated prices for their bulbs, and they began to sell. The bubble burst. People began to suspect that the demand for tulips could not last, and as this spread a panic developed. Some were left holding contracts to purchase tulips at prices now ten times greater than those on the open market, while others found themselves in possession of bulbs now worth a fraction of the price they had paid. Allegedly, thousands of Dutch, including businessmen and dignitaries, were financially ruined.
At first 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. These plans failed. Eventually, assembled deputies in Amsterdam declared null and void all contracts that were made at the height of the mania, meaning prior to November 1636. Tulip contracts made subsequent to that date were settled if buyers paid merely 10% of the prices to which they had earlier agreed.
But tulip prices continued to fall and the provincial council in the Hague was asked to invent some measure to stabilize tulip prices and public credit. Those efforts failed. In Amsterdam, judges unanimously refused to honor tulip contracts, regarding them as gambling activities. The court rules that gambling debts were not debts in the eyes of the law. No court in Holland could - or would - enforce payment. Tulip collectors, speculators, and gamblers who had tulips at the time of the collapse were left to bear ruinous losses.
Tulip prices soon plunged to less than the present equivalent of a dollar each, which inflicted the whole of the commerce in Holland.
Lesser versions of the tulipomania also occurred in other parts of Europe, although matters never reached the state they had in the Netherlands. In England in 1800, it was common to pay fifteen guineas for a single tulip bulb. This sum would have kept a labourer and his family in food, clothes and lodging for six months.