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| The Semper Augustus tulip is shown in Jan De Heem’s 1660 still life, Vase of Flowers. |
In this time of falling home prices, declining markets and $108-a-barrel crude, many people have the economic jitters. The money people - those that seem to profit in either a bull or bear market - assure us current conditions are a part of the normal cycle, or as they are fond of saying "a market correction."
The rest of us without schooling in economic theory call it a blatant example of greed and speculation. In this time of uncertainty, it might be good to remember it has happened before by considering the tulipmania that swept through Holland in the 1630s.
Tulips were introduced into Europe in 1554 when King Ferdinand I’s ambassador to Suleyman the Magnificent of the Ottoman Empire picked up some bulbs while visiting Constantinople. They gained popularity quickly amongst the European elite.
Charles de L’Ecluse (or Carolus Clusius), a Dutch medical professor in the late 16th century, worked out the details of how to grow them on large scale and was largely responsible for establishing the tulip as an economic mainstay for what was to become the Netherlands.
During the 1630s the price of bulbs steadily increased and, as often develops, a speculative futures market developed around the bulbs. During 1635, single bulbs of the most desirable kinds were going for as much as 2,500 florins. By comparison, a fatted pig sold for 30 florins.
By 1636, local taverns had become de facto stock exchanges and the middle class got involved in speculating. In December of that year, the legislature changed the rules on the futures contracts, declaring that all sales would be "options contracts" (to use modern day terminology). Under the new rules buyers did not have to pay for the bulbs unless the price continued to go up. If they chose to default (if the price declined) they paid only 3.5 percent of the option price.
This buyer-friendly scheme led to rampant speculation in an already overheated market. During the next couple months, until trading was suspended on Feb. 5, 1637, prices soared to new highs. A single bulb of Semper Augustus, a "broken" red tulip with white stripes sold for 6,000 florins. With the suspension of trading the market collapsed, and we had our first example of a bubble market.
Several factors were at play during this market bubble. First, Europe was nearing the end of its longest war, the Thirty Year War, and investors were bullish on the future. As the market expanded and became accessible at the local tavern, more people were drawn into the scheme.
Secondly, and perhaps most importantly, new kinds of variegated (i.e. "broken" cultivars) tulips were showing up in gardens. Broken tulips usually were red cultivars with dramatic streaks of white. They couldn’t be raised from seed and natural bulb increase was slow so the best kinds, such as Semper Augustus, were in short supply.
While supply and demand theory is allegedly a true economic principle, supply and reason don’t always go hand in hand. It was not until the 1920s that it was proven these broken tulips were infected with a virus.
So it goes. Tulips still are grown and remain an important source of income for many, but the speculators have moved on. Internet stocks, sub-prime mortgages, earthworms and other forms of modern day folly have all been blessed by the bubble.
By: Gerald Klingaman, retired
Extension Horticulturist
- Ornamentals
Extension News -
April 4, 2008
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