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Tulip Mania: Lessons from the World‘s First Speculative Bubble

In the mid-1630s, a speculative frenzy over exotic tulips gripped the Netherlands. At the height of the bubble, contracts for single tulip bulbs sold for more than 10 times the annual income of a skilled artisan before collapsing dramatically in February 1637. Nearly 400 years later, tulip mania remains a fascinating case study as the world‘s first major speculative bubble.

The Dutch Golden Age

To understand tulip mania, we must first look at the historical context. The Dutch Republic of the 17th century was a global superpower at the height of its wealth and influence. The tiny nation dominated world trade, had the highest per capita income in Europe, and was a leader in art, science and technology during a period known as the Dutch Golden Age.

A few statistics illustrate the Netherlands‘ dominance:

  • The Dutch East India Company (VOC), founded in 1602, was the world‘s first multinational corporation and at one point employed nearly a million people.
  • By 1650, half of Europe‘s trade passed through Dutch ports and the Netherlands had as many merchant ships as the rest of Europe combined.
  • Dutch inventors pioneered groundbreaking technologies like the sawmill, telescope, microscope and pendulum clock.

17th century Dutch gold coins
*Dutch gold coins from the early 1600s. The Netherlands‘ thriving economy made it a center of international trade and finance. (Source: Rijksmuseum)*

This thriving economy created a large and prosperous merchant class, with ample money to spend on luxuries. One of the ultimate status symbols was a garden full of exotic flowers, with tulips being the most coveted.

"Broken" Tulips Spark a Craze

Native to Central Asia, tulips were first introduced to Europe from Turkey in the mid-16th century. The Dutch climate proved ideal for tulip cultivation and a thriving flower industry soon developed.

What made certain tulips so valuable was their rarity and beauty, especially the prized multi-colored varieties. These "broken" tulips had petals streaked with contrasting colors, the result of a then-mysterious virus that broke the lock on pigment.

"[Tulips] are so beautiful that all other flowers are worthless compared to them. Because of this, and because they are still rare, some very strange things often happen." – Benedetto Frescobaldi, visiting Amsterdam in 1611-1612.

The most famous broken tulip was the Semper Augustus, with its distinctive pattern of crimson flames on white petals. In the 1620s, there were only around a dozen known Semper Augustus bulbs, driving prices to astronomical heights:

Tulip Variety Year Price in Guilders
Semper Augustus 1623 12,000
Semper Augustus 1624 1,200
Semper Augustus 1625 5,500
Semper Augustus 1637 5,200
Viceroi 1637 4,203
Admiral van Enkhuizen 1637 5,200

Prices for notable tulip varieties in Dutch guilders. A skilled laborer in 1637 earned around 300 guilders per year. (Sources: Garber 1990; Thompson 2007)

Peak of the Bubble

Tulip mania reached its peak during the winter of 1636-37, as a futures market emerged for contracts to buy tulip bulbs at the end of the season. Speculators bought and sold contracts, often never seeing the actual bulbs, in a frenzy of daily bidding.

"Many individuals grew suddenly rich. A golden bait hung temptingly out before the people, and one after the other, they rushed to the tulip-marts, like flies around a honey-pot." – Charles Mackay, Extraordinary Popular Delusions and the Madness of Crowds (1841)

Prices for some bulbs reached truly astronomical levels. At the height of the mania, a single Viceroi bulb sold for 4,203 guilders – enough to purchase a small house in Amsterdam. It was reported that a sailor in Amsterdam mistakenly ate a tulip bulb worth 2,500 guilders, believing it to be an onion.

17th century Dutch tulip market
*A 17th century Dutch painting depicting a busy outdoor tulip market in full swing. (Source: Frans Hals Museum)*

The Bubble Bursts

In early February 1637, the tulip bubble suddenly burst. Prices cratered by 95% as speculators who had bought futures contracts struggled to find buyers to unload them on. The collapse was devastating for those caught holding now-worthless bulbs:

"Hundreth Pound Shares in the East-India Company, were not there more prizable than an Acre of Ground planted with Tulips was here; but as the Folly was very great, and had taken universally, so they smarted universally under the sudden Fall of their Estates in these unperishing Commodities." – Joseph Penso de la Vega, Confusion of Confusions (1688)

The ripple effects spread far beyond just tulip traders. Many Dutch businesses had accepted tulips as payment and were now left with a worthless asset. The Dutch parliament considered passing a law to support the tulip market by forcing speculators to honor their contracts, but ultimately decided against intervening.

A Rational Bubble?

The traditional view among economists and historians was that tulip mania was a case of irrational exuberance and speculative excess. However, some scholars in recent decades have argued there may have been more method to the madness:

  • Earl Thompson (2007) makes the case that highly valued broken tulips were rationally priced based on their rarity and the difficulty of producing them, with the crash caused by oversupply as cultivators succeeded in growing more broken varieties.

  • Peter Garber (1990) argues tulip mania was not appreciably different from the routine speculation and price swings seen in many commodity markets.

These arguments remain hotly debated. What is clear is that tulip mania had all the hallmarks of a classic bubble – a sexy new asset, easy credit, rampant speculation and a burst when some trigger saps demand.

Aftermath and Legacy

In the aftermath of the tulip crash, the Dutch government did not bail out traders or underwrite the bulb market. Tulip mania had little macro-economic impact thanks to its relatively small scale. The episode did not trigger a wider financial crisis or recession.

However, tulip mania left a profound cultural and social impact. It roused fierce debate about the morality of speculation and the very nature of value. Public disdain for excessive greed and financial recklessness took root. Calvinist ministers sermonized against the evils of gambling and avarice.

The tulip bubble firmly established the Netherlands as the "cradle of modern finance." It served as prelude to Dutch financiers going on to pioneer revolutionary concepts like short selling, futures, and options markets over the remainder of the 17th century. The Dutch were also first to be hit with another bout of speculative mania with the South Sea Bubble of the 1720s.

"The tulip was to the Dutch what the South Sea Company was to the English, or Law‘s Mississippi scheme to the French; the national folly in which their sober good sense was most strikingly exemplified." – George Francis Train, Young America Abroad (1857)

Timeless Lessons

Nearly four centuries later, the story of tulip mania has never been more relevant. It set the pattern for the endless parade of booms and busts in the modern capitalist system – from the 1920s stock market bubble, to the Japanese asset price bubble of the 1980s, the dot-com bubble of the 1990s, and the US housing bubble that triggered the Great Recession.

Then as now, when some sexy new commodity emerges – whether it‘s 17th century tulips or 21st century tech startups – human nature takes over. Greed and easy credit fuel rampant speculation, inflating prices beyond any logical basis until the mania finally exhausts itself. The bubble pops and the unlucky ones left holding the bag face financial ruin.

"Investing in tulips didn‘t end well for the Dutch. It rarely does when people start believing that they‘ve found a surefire moneymaker." – Jason Zweig, The Intelligent Investor (2003)

The story of tulip mania may seem almost quaint through a modern lens. A flower bulb seems an unlikely candidate for a speculative mania. But by inflating tulip prices to such absurd levels, the episode revealed essential truths about the unleashed forces of greed, credit and herd behavior in markets.

As we grapple with the fallout from the latest financial crisis and ponder how to prevent the next, it‘s worth remembering the timeless lessons from this curious little bubble four centuries ago. The details may change, but the underlying dynamics remain the same. We forget them at our peril.


  • Dash, Mike (2001). Tulipomania: The Story of the World‘s Most Coveted Flower & the Extraordinary Passions It Aroused. Broadway Books.
  • Garber, Peter M. (1990). "Famous First Bubbles." Journal of Economic Perspectives, Spring 1990, p. 35-54.
  • Goldgar, Anne (2007). Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age. University of Chicago Press.
  • Mackay, Charles (1841). Memoirs of Extraordinary Popular Delusions and the Madness of Crowds. London: Richard Bentley.
  • Thompson, Earl A. (2007). "The Tulipmania: Fact or Artifact?" Public Choice 130, p. 99-114.