Tulip mania - the first speculative bubble in history.
The phenomenon of a speculative bubble, when market participants trade goods at prices that are significantly and artificially high in comparison with real ones, is not at all uncommon for the modern market. History knows a large number of examples of speculative bubbles, when some commodity, after an inexplicable rise in price, rapidly fell in price, leaving many people with nothing. The first such well-documented case occurred in the Netherlands in the first half of the 17th century.
Nowadays, the Netherlands is known for its tulip farms - the country exports these flowers almost all over the world. The history of tulip cultivation in the Netherlands is much older than it might seem - it has been grown there since the middle of the 16th century, almost since the bulbs of these flowers were first brought to Europe.
At first, these were only half-hearted experiments of a few enthusiasts, but soon the Dutch farmers were able to fully master the process of growing flowers and began to sell them on the market. Rumors of bright and unusual plants quickly spread throughout Europe - this flower became a symbol of the scientific progress of society and the height of the Renaissance. People met each new tulip color with excitement – this reminds how people are now queuing up for a new gadget from well-known companies. Owning tulip bulbs to grow in their garden has become a cherished desire for many people.
All this led to the fact that by the beginning of the 17th century, prices for tulips rose significantly. The increasing popularity and export of tulips to other European countries raised the demand for them higher and higher, while the imperfect agriculture of that time could not fully satisfy it. The prices for this flower, which by that time had already taken significant place in European culture, continued to grow, tulip bulbs began to be considered a profitable financial investment, and not just a fashion indicator. But only a narrow circle of people had access to their purchases due to high prices (at the beginning of the 17th century one bulb cost the same as three average artisans earned in a year), so although the prices were high, the trade did not get out of control... In order for ordinary people to gain access to the bulbs, something had to happen that would bring down their prices. And soon such an incident happened.
The so-called variegated tulips were bred, the petals of which were painted in two colors, fancifully mixed in a pattern with a predominance of stripes. It was later found that variegated tulips became so because of a virus that infects about 1-2 bulbs out of 100. A rare phenomenon that actually signaled a flower disease, delighted people with its beauty, so all investors quickly forgot about ordinary bulbs, starting hunting for variegated ones, which could give rise to tulips of unusual color combinations.
The price of regular bulbs had dropped, so more people could now afford them. “But what if, after planting a few bulbs, the next year you will get a variegated tulip? In this case you will be able to live on the money from its sale for the rest of your life!" This is what the majority of ordinary residents of the Netherlands thought about, and hurried up to buy tulips on farms. What would later be called tulip mania or tulip fever began.
Already in 1633, records began to appear that some residents were selling their houses for a few tulip bulbs. Soon, such incidents were no longer surprising. At first, the bulbs were bought by those who at least understood something in gardening, but after a while mania and rumors about extraordinary enrichments forced other people to come to the market.
In 1634, breeders cultivated several dozen varieties of tulips at once, which lowered the prices of the previous ones and attracted people with low incomes to tulip mania. The tulip trade began to be carried out all year round: in the markets they sold obligations to transfer flowers to the buyer the next year at the time of their flowering. As early as 1635, contracts for bulbs were in full swing, relegating the original object of speculation to the background. These contracts were then resold many times, each time increasing the price. The so-called air trade began, with most of the participants having no experience in speculative trading.
Soon, the bulbs as a commodity were completely forgotten - there was a trade in aces, which denoted the unit of weight of the bulb. One ace was about 5% of the entire bulb. Gradually, the aces replaced real money: they bought food, real estate and other goods with it.
But still, until 1635, the price of tulip bulbs grew evenly. And from November 1636, the excitement began on the market. This was preceded by a landslide fall in prices, when rumors reached Amsterdam and other cities about the defeat of the German army at Wittstock - Germany was one of the main consumers of tulips. Actually, it was then that the demand for the bulbs themselves fell sharply, after which it did not recover. But despite the real state of affairs in the market, after the collapse of prices for contracts, they immediately followed a sharp, unsupported rise - professional speculators entered the business, warming up the market. Other inexperienced buyers were led to their tricks. In one month of trading, the price of contracts raised up about 25 times. It got to be ridiculous: a tulip bulb could be bought for a low price, while the contract for it was fabulous.
In early 1637, rumors of plague outbreaks in neighboring regions reached the Netherlands. Worried traders began to get rid of their contracts, which caused sharp drop in prices. Thousands of contract holders at one point lost all their savings, becoming debtors.
For many years, the Netherlands plunged into litigation regarding the payment of amounts under contracts. Some lucky ones managed to agree on a gratuitous termination, but not everyone was lucky. All over the country there was a search for those to blame for what had happened, and the word "speculator" became a dirty word for a long time.
Tulip mania influenced the national character of the Dutch severely: they became more withdrawn and for a long time hesitated to work with risky assets. In history, tulip mania will remain one of the first speculative bubbles, bringing fabulous wealth to some and ruining others.
