Historic Bubbles – Tulip Mania – 1637


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Historic Bubbles – Tulip Mania – 1637

Source: Wikipedia

Tulip mania or tulipomania (Dutch names include: tulpenmanie, tulpomanie, tulpenwoede, tulpengekte and bollengekte) was a period in the Dutch Golden Age during which contract prices for bulbs of the recently introduced tulip reached extraordinarily high levels and then suddenly collapsed.[2] At the peak of tulip mania, in February 1637, some single tulip bulbs sold for more than 10 times the annual income of a skilled craftsman. It is generally considered the first recorded speculative bubble (or economic bubble),[3] although some researchers have noted that the Kipper- und Wipperzeitepisode in 1619–22, a Europe-wide chain of debasement of the metal content of coins to fund warfare, featured mania-like similarities to a bubble.[4] The term “tulip mania” is now often used metaphorically to refer to any large economic bubble (when asset prices deviate from intrinsic values).[5]

The event was popularized in 1841 by the book Extraordinary Popular Delusions and the Madness of Crowds, written by British journalist Charles Mackay. According to Mackay, at one point 12 acres (5 ha) of land were offered for a Semper Augustus bulb.[6] Mackay claims that many such investors were ruined by the fall in prices, and Dutch commerce suffered a severe shock. Although Mackay’s book is a classic that is widely reprinted today, his account is sometimes contested. Some modern scholars feel that the mania was not quite as extraordinary as Mackay described. Some even argue that not enough price data remain, historically, to represent an all out tulip bulb bubble.[7][8]

Research on the tulip mania is difficult because of the limited economic data from the 1630s—much of which comes from biased and anti-speculative sources.[9][10] Although these explanations are not generally accepted, some modern economists have proposed rational explanations, rather than a speculative mania, for the rise and fall in prices. For example, other flowers, such as the hyacinth, also had high prices with the flower’s introduction, which immediately fell, and fell dramatically. The high asset prices may also have been driven by expectations of a parliamentary decree that contracts could be voided for a small cost—thus lowering the risk to buyers.

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Source: Wikipedia



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