« My Favorite Things Tanzania | Main | An Economist's Son »
Was Tulipmania a myth?
Chris Bertram reports:
Simon Kuper, in today’s FT, reviews Anne Goldgar’s Tulipmania, a new study of the 17th century boom and bust in the Dutch tulip market. Disappointingly, it turns out that most of the stories are false. There was a boom, but it was a fairly marginal phenomenon in the Dutch economy, and people weren’t ruined: the deals were done when the plants were in the ground, but payment was due only when the bulbs were dug up. Most people simply refused to pay, or paid only a small fraction of what they owed.
Here is Peter Garber's earlier revisionist account. I've never been convinced by Garber's claim that it was driven by fundamentals, but I am ready to believe that historically the crash was not such a big deal
Posted by Tyler Cowen on May 14, 2007 at 06:07 AM in History | Permalink
Comments
Professor Cowen, if this was not the first large "market bubble", what was?
Posted by: John Goes at May 14, 2007 8:00:35 AM
This reminds me of how the stories about widespread hysteria during Orson Welles's "War of the Worlds" broadcast have relatively recently been debunked.
BTW -- an entertaining book along these lines is Richard Shenkman's "I Love Paul Revere, Whether He Rode or Not." Shenkman himself seems a little overly credulous at times, but he does bring forth interesting counter-evidence to conventional wisdom about U.S. history.
Posted by: jp at May 14, 2007 9:16:32 AM
'Most people simply refused to pay, or paid only a small fraction of what they owed.'
According to John Steele Gordon's The Great Game, the same thing happened in 1869 in New York when Jay Gould's attempt to corner the gold market blew up in his face.
Posted by: PatrickR at May 14, 2007 11:04:02 AM
Later editions of Charles Kindleberger's classic _Manias, Panics, and Crashes_ lists the
crash of the Holy Roman currency in the early stages of the Thirty Year's War as prior to
the Tulipmania. According to Garber, there was a bubble, but only in Jan. 1637 and only in
ordinary bulbs, not the fancy ones talked about in many of the famous accounts, a bubble
that crashed suddenly on Feb. 6, after which the market was closed for about two months.
The speculation was strictly in futures, and also took place in a tavern, always good for
rational economic calculation.
Posted by: Barkley Rosser at May 14, 2007 6:27:37 PM
>>The speculation was strictly in futures, and also took place in a tavern, always good for
rational economic calculation.<<
Not to mention for assessment of counterparty creditworthiness.
Posted by: Mister Bascomb at May 17, 2007 2:52:55 PM
1. I haven't read the new version of Goldgar's book, the original was published in 2000. I have only read the review. But, if the review is accurate, a better book to read is Mike Dash's book "Tulipmania, The Story of the World's most Coveted Flower & The Extraordinary Passion It Aroused".
2. Dash makes the following observations about the Tulip mania in Holland.
a) The trade in tulips started off as bulb exchange, physical commodities. But the bulbs in question had an odd property - at random and undetectable, because of an undetected virus- the bulbs would change their properties, from dull unicolors to wildfire colours. There was an essential randomness about the product. But the trading season was short- between growers and horticulturists.
b) There was an extraordinary belief, for the period and time, that "social mobility was the birthright of every Dutchman."
c) The Dutch had both a propensity to save and gamble.
d) The bulbs bought and sold in 1630's were not the out and out rarities, which were limited in numbers. But this was a market in futures, which was technically illegal at the time. The Government had tried to prevent several times.
e) The actual tulip mania last from 1634 to January, 1637 - when the price of a bulb could double in a week.
f) What was being sold, by the florists, from 1634 to 1637 were promissory notes. As described by by Dash "it became perfectly normal for florists to sell tulips they could not deliver to buyers how did not have the cash to pay for them and had no desire ever to plant them."
g) The margin requirements for purchase was 10% down, but there were no other credit checks.
h) The peculiarity of the auction, yes conducted in Taverns, favoured accepted reasonable bids.
i) In the end, the Government suspended the legal enforcement of the contracts, to allow the individual provinces the time to "investigate" the problem. It appears that most growers eventually accepted 3 cents on the dollar in compensation for the right to cancel the sale.
j) The local banking economy was not threatened by this mania- there weren't any banks.
Dash's book contains a wealth of interesting details, and I recommend it.
Posted by: Michael Webster at May 31, 2007 10:04:29 AM
Posted by: 鑽石 at Apr 2, 2008 8:23:48 PM
