Everything Everywhere Daily: History, Science, Geography & More - Tulipmania!

Episode Date: February 4, 2021

In the 17th century, the Netherlands was struck by the world’s first investment bubble. They weren’t investing in stocks or bonds or real estate. They were investing in…..tulip bulbs. Tulip bulbs became a mania and even common people were spending money on tulips. The price of some tulip bulbs rose so high that at one point a single bulb was worth 10 times the annual salary of a laborer. Learn more about Tulipmania on this episode of Everything Everywhere Daily. Learn more about your ad choices. Visit megaphone.fm/adchoices

In the 17th century, the Netherlands was struck by the world's first investment bubble. They weren't investing in stocks or bonds or real estate. They were investing in tulip bulbs. Tulip bulbs became a mania, and even common people were spending money on tulips. The price of some tulip bulbs rose so high that at one point a single bulb was worth more than 10 times the annual salary of a laborer. Learn more about tulip mania on this episode of Everything Everywhere Daily. What if your perceptions about the past, We're wrong. ThruLine is a podcast that takes you back in time to uncover the parts of the story

that may have gone unnoticed. It effectively turned day into night. And how it shaped the world now. Time travel with us every week on the ThruLine podcast from NPR. This episode is sponsored by CuriosityStream. If you're thinking of dabbling in the stock market, you should take the time and learn a bit about economics before you start. CuriosityStream has dozens of shows about economics, finance, and the stock market to help you become a more informed investor. Prices start at $2.99 per month, or $1999 per year. If you're a curious person, and let's face it, if you're listening to this podcast, you probably are,

then to start your subscription, visit everything-everywhere.com slash curiosity stream, or by clicking on the link in the show notes. Today, the Netherlands is associated with tulips. They produce more tulips than any other nation in the world, even though it's a relatively small country. Every year, the country produces over 3 billion tulip bulbs, mostly for export. However, tulips are not native to the Netherlands. Just like how tomatoes are not native to Italy and potatoes are not native to Ireland, the tulip did not come from Europe. Tulips originally came from Central Asia, in particular the region around the Tian Shan Mountains

in what is today Turkmenistan, Tajikistan, Uzbekistan, Kyrgyzstan, and northwestern China. There isn't a single mention of tulips anywhere in antiquity. Nothing from Rome, Greece, Persia, India, or China. Nothing. It's believed that the tulip was first cultivated by the Persians around the 10th century. It was then that the tulip began being mentioned in texts. From Persia, the Seljuk Turks brought it into what is today modern Turkey, where they were widely cultivated and new hybrids were grown. Legend holds that the introduction of tulips to northwestern Europe came in the 15th century,

from the ambassador of the Holy Roman Emperor to the court of Suleiman the magnificent, Oger Gisland de Busbeck. In a letter he wrote about his time in Constantinople, he said, There is an abundance of flowers everywhere, narcissus, hyacens, and those in Turkish called Lael, much to our astonishment, because it was almost midwinter, a season unfriendly to flowers, unquote. Lale were tulips. The person who's given credit for the wide-scale spread of tulips and growing the first tulip in the Netherlands is Carlolus Clusis.

He was appointed head botanist at Leiden University and brought with him samples of the flower he was growing in Vienna in 1594. And with tulips in the Netherlands, our story really starts. In the early 17th century, the Netherlands was probably the richest country in the world. The country was a republic. They had extensive trade networks. and there was a growing middle class of merchants and tradespeople. There were numerous financial innovations during this time. The Dutch East India Company was the world's first company to issue shares to the general public.

They also created the world's first stock exchange in Amsterdam in 1602. The printing industry had been fully established, making the widespread transmission of information far easier and cheaper than it had ever been. The newly wealthy looked for ways to show off their wealth, and one of the popular items were the newly arrived flowers. called tulips. Tulips were extremely colorful and came in a variety of colors. The flower developed a mystique around it because of its exotic nature and appearance. Cross-breeding tulips to create new varieties became popular in the Netherlands, and as new types of tulips were developed,

people gobbled them up. Every once in a while, something would happen to a few tulips. They would suddenly sprout multiple colors, tulip petals which had stripes which gave the flower the appearance of flames. These tulips were the rarest, the most prized, and the most expensive. To be totally accurate, the Dutch tulip bubble was not a bubble in the price of tulips per se, but rather a bubble in the price of these rare broken bulbs that had multiple colors. Regular bulbs were affected, as we'll soon see, but it was the broken bulbs that drove the frenzy. Beginning in 1634, the price of bulbs started to rise. The initial rise was simply due to supply and demand. The demand for these bulbs was growing rapidly and supply was limited. These particular

broken tulip bulbs took a few years to grow so the supply couldn't react rapidly to the increase in demand. As the prices rose, speculators began to get in on the action. As early as 1634, the cost of a single rare bulb was getting astronomical. There were reports of bulbs selling for as much as 4,000 or even 5,500 florins. To put this in perspective at the time, a thousand gallons of beer cost 32 florins. As prices kept going up, more and more people wanted in on the action. The Amsterdam Stock Exchange began selling tulips. Many of the financial innovations we know today were developed or used in the selling of tulips, including futures contracts and buying on the margin. Eventually, most people weren't even exchanging actual bulbs, but only the

rights to bulbs. The peak of the bubble was in the winter of 1636 and 1637. November 1636 saw a sudden massive spike in the price of rare broken tulip bulbs. The price eventually rose so high that most people couldn't even afford it anymore, and they began trading normal tulip bulbs. By January 1637, the price of a single bulb had reached 10,000 florence. Author Mike Dash described just how much 10,000 Florence was in his book Tulip Mania. He said, quote, it was enough to feed, clothes, and house, a whole Dutch

family for half a lifetime, or sufficient to purchase one of the grandest homes on one of the most fashionable canals in Amsterdam, for cash, complete with a coach house and an 80-foot garden. And this was at a time when most homes in that city were as expensive as property

anywhere in the world. The most valuable bulb was a red and white tulip known as Semper Augustus. In February 1637, the market collapsed. Prices had gotten so high that few people could buy the bulbs anymore, which softened demand. Most importantly, people who took out loans to buy tulip bulbs had to sell their bulbs to pay back their loans once the price stopped going up.

Speculation only works when there are still people you can sell to. Once the margin trader started to sell, the price dropped rapidly. people went bankrupt, lost fortunes, and there was a whole lot of tulip bulbs that no one could sell for even a fraction of what they originally paid for. The world's first speculative asset bubble had come and gone. Most of what we know today about the tulip bubble came from an 1841 book called Extraordinary Popular Delusions and the Madness of Crowds by Scottish author Charles McKay. For about 140 years, his work on the tulip bubble was what most subsequent works were based on. However, in the 1980s, researchers revisited the tulip bubble, and they came to some very different conclusions. Most of the original sources that McKay used were polemics written by Calvinists after the bubble.

Many of their stories were exaggerated to serve as moral lessons to people about greed. What modern researchers discovered is that while there was a large spike in prices, it wasn't something that everyone in the country was engaged in. It was mostly a small group of financiers in Amsterdam who took part. When the bubble burst, there were no wide-ranging impacts on the Dutch economy. Most people could never have afforded to have taken part in buying bulbs that were so expensive. The people who lost money were mostly people who could afford it. Even if the impact and extent of the tulip bubble were exaggerated,

it still remains the first real speculative bubble in world history. Why did it happen at this time and not earlier? Mainly, the 17th century Netherlands was a perfect breeding crown for something like this to happen. You had the world's first exchanges, margin trading, futures, options, and information was allowed to travel faster than in the past. Something like this could have never happened in ancient Rome because the conditions didn't allow for it. Rome mostly had people with leather purses with coins, no exchanges, and no financial instruments. While the tulip bubble was the first speculative bubble, it certainly wasn't the last. There have been subsequent bubbles in stocks, bonds, real estate,

and even Beanie Babies. The lessons of the tulip bubble have been. The lessons of the tulip bubble have been proven over and over for centuries. What goes up must eventually come down. Executive producer of Everything Everywhere Daily is James McAlla. The associate producer is Thor Thompson. Remember to leave a five-star review to get your review read on the show. They can be left at Apple Podcasts, Podcasts, Podcast Republic, or wherever you listen to the show. Also, you can help support the show over at patreon.com. Patrons can get merchandise like t-shirts and hoodies, as well as having direct access to provide suggestions for future episodes. Thanks.