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Pamphlet from the Dutch tulipomania, printed in 1637

The term tulip mania (alternatively tulipomania) is used metaphorically to refer to any large economic bubble. The term originally came from the period in the history of the Netherlands during which demand for tulip bulbs reached such a peak that enormous prices were charged for a single bulb. It took place in the first part of the 17th century, especially in 1636–37.

The event is remembered in part because of its extended discussion in the book Extraordinary Popular Delusions and the Madness of Crowds, written by popular British journalist Charles Mackay in 1843, more than two centuries after the event. Mackay omitted mentioning that during 1636-37, the Netherlands suffered from an epidemic of bubonic plague, and severe setbacks in the Thirty Years War. [1]. Modern scholars (e.g. Garber) consider the event much less extraordinary than did Mackay.

The tulip, introduced to Europe in middle of the 16th century from Ottoman Empire, experienced a strong growth in popularity in the United Provinces (now the Netherlands), boosted by competition between members of the upper classes for possession of the rarest tulips. Competition escalated until prices reached very high levels.

Tulip cultivation in the United Provinces is thought to have started in 1593, when Charles de L'Ecluse first bred tulips able to tolerate the harsher conditions of the Low Countries from bulbs sent to him from Turkey by Ogier de Busbecq. The flower rapidly became a coveted luxury item and a status symbol. Special breeds were given exotic names or named after Dutch naval admirals. The most spectacular and highly sought-after tulips had vivid colors, lines, and flames on the petals as a result of being infected with a tulip-specific virus known as the Tulip Breaking potyvirus [2].

Anonymous 17th-century watercolor of the Semper Augustus, the most famous bulb, which sold for a record price.

In 1623, a single bulb of a famous tulip variety could cost as much as a thousand Dutch florins (the average yearly income at the time was 150 florins). Tulips were also exchanged for land, valuable livestock, and houses. Allegedly, a good trader could earn sixty thousand florins a month.

By 1635, a sale of 40 bulbs for 100,000 florins was recorded. By way of comparison, a ton of butter cost around 100 florins and "eight fat swine" 240 florins. A record was the sale of the most famous bulb, the Semper Augustus, for 6,000 florins in Haarlem.

By 1636, tulips were traded on the stock exchanges of numerous Dutch towns and cities. This encouraged trading in tulips by all members of society, with many people selling or trading their other possessions in order to speculate in the tulip market. Some speculators made large profits as a result. Others lost all or even more than they had.

Some traders sold tulip bulbs that had only just been planted or those they intended to plant (in effect, tulip futures contracts). This phenomenon was dubbed windhandel, or "wind trade", and took place mostly in the taverns of small towns using an arcane slate system to indicate bid prices. (The term windhandel is similar to the recent term vaporware: both have much the same metaphor.) A state edict from 1610 (well before the alleged bubble) made that trade illegal by refusing to enforce the contracts, but the legislation failed to curtail the activity.

In February 1637 tulip traders could no longer get inflated prices for their bulbs, and they began to sell. The bubble burst. People began to suspect that the demand for tulips could not last, and as this spread a panic developed. Some were left holding contracts to purchase tulips at prices now ten times greater than those on the open market, while others found themselves in possession of bulbs now worth a fraction of the price they had paid. Allegedly, thousands of Dutch, including businessmen and dignitaries, were financially ruined.

Attempts were made to resolve the situation to the satisfaction of all parties, but these were unsuccessful. Ultimately, individuals were stuck with the bulbs they held at the end of the crash—no court would enforce payment of a contract, since judges regarded the debts as contracted through gambling, and thus not enforceable in law.

Lesser versions of the tulipomania also occurred in other parts of Europe, although matters never reached the state they had in the Netherlands. In England in 1800, it was common to pay fifteen guineas for a single tulip bulb. This sum would have kept a labourer and his family in food, clothes and lodging for six months.

Charles McKay, in his book "Extraordinary Popular Delusions and the Madness of Crowds', tells a story of the time:

A wealthy merchant had paid 3,000 florins (280 pounds sterling) for a rare Semper Augustus tulip bulb, and it disappeared from his warehouse. After thoroughly searching his warehouse, he saw a sailor (who had mistaken the tulip bulb for an onion) eating it. The sailor was promptly arrested and spent months in jail.

Mike Dash, author of the modern popular history "Tulipomania," states

The history of the tulip mania itself, however, remains remarkably obscure, and even now it has never been the subject of an exhaustive scholarly inquiry.

....My general feeling, after reviewing the available material, is that even after sounding the necessary notes of caution about the reliability of the popular accounts, historians and particularly economists remain guilty of exaggerating the real importance and extent of the tulip mania. (p.222, footnote)

A 2002 paper by UCLA's Earl A. Thompson and Jonathan Treussard, "The Tulipmania: Fact or Artifact?", provides an alternate explanation for Dutch tulip mania: that it was not caused by irrational speculation, but rather by a Dutch parliamentary decree (originally sponsored by Dutch investors made skittish by the Thirty Years' War then in progress) that made the purchase of tulip-bulb "futures contracts" a nearly risk-free proposition:

...both the famous popular discussion of Mackay and the famous academic discussion of Posthumus, 1929, point out a highly peculiar part of this episode. In particular, they tell us that, on February 24, 1637, the self-regulating guild of Dutch florists, in a decision that was later ratified by the Dutch Parliament, announced that all futures contracts written after November 30, 1636 and before the re-opening of the cash market in the early Spring, were to be to [sic] interpreted as option contracts. They did this by simply relieving the futures buyers of the obligation to buy the future tulips, forcing them merely to compensate the sellers with a small fixed percentage of the contract price.

Given data about the specific payoffs present in the futures and option contracts, the authors determine that tulip bulb prices in fact hewed closely to what a rational economic model would dictate: "tulip contract prices before, during, and after the 'tulipmania' appear to provide a remarkable illustration of market efficiency."

• Tulip Era in the Ottoman Empire

Other bubbles

• South Sea Bubble
• Roaring twenties
• Dot.com bubble

Wikisource has original text related to this article:

The Tulip Mania

• The Tulip Mania, Harper's New Monthly Magazinhttp: No. CCCXL, April 1876, Vol. LII.
• Doug French, The Dutch monetary environment during tulipomania (2006)
• Mike Dash, Tulipomania: The Story of the World's Most Coveted Flower and the Extraordinary Passions It Aroused (1999) ISBN 0-575-06723-3
• Charles P. Kindleberger Manias, Panics, and Crashes: A History of Financial Crises (2000) ISBN 978-0471389453
• Peter M. Garber, "Tulipmania", The Journal of Political Economy, 97, 535-560 (1989).
• Anna Pavord, The Tulip (2004) ISBN 0-7475-7190-2
• Michael Pollan, The Botany of Desire (2001) ISBN 0-375-76039-3

• The Tulipomania, from Charles Mackay's Extraordinary Popular Delusions and the Madness of Crowds — online edition
• Tulipomania, from History House, "an irreverent history magazine"
• Wageningen Tulip Portal, an extensive collection of historical resources, including scanned images of seventeenth century Dutch tulip books and pamphlets, from Wageningen UR Library"
• Illustrated pages from a 17th-century Dutch book on tulips at the Norton Simon Museum. Some pages may be unavailable.
• James Grout: Tulipomania, part of the Encyclopædia Romana
• Slate Magazine article on the Thompson & Treussard paper
• Page on the Tulip Breaking potyvirus from Plant Viruses Online
• Charles McKay's Account of Tulipomania in Modern English
• An essay in several parts on the link between the ecology of the plant and the subsequent market structure