The Dutch society increased their wealth disproportionally and in a very short period of time, due to their trade with Asia and the East Indies. During this bonanza of free-flowing wealth, tulips became the “it” item to showcase one’s level of wealth. Then, the "bubble" burst...
By Jorge Reano
During the Dutch Golden Age (circa 17th Century) the Netherlands had become the leading economic and financial power of Europe after no longer being the Spanish Netherlands.
The Dutch society increased their wealth disproportionally and in a very short period of time, due to their trade with Asia and the East Indies. During this bonanza of free-flowing wealth, tulips became the “it” item to showcase one’s level of wealth.
Tulips were the items the nouveau-riche preferred to use as a way to show their wealth. Shortly, Tulips became more expensive than gold (literally).
For example, in 1637 where a skilled craftsman earned 300 guilders (Dutch florins) annually, one Viceroy Tulip was offered for sale between 3,000 and 4,200 guilders.
Because of demand from within the Netherlands, as well as from French speculators interested in popular flowers, and especially, in the “bulbs” from where the tulips develop, the “Futures Market” was born and it became a “winner take all” kind of game.
To ensure the purchase of these bulbs, investors started to sign contracts with the producers at ever more exorbitant prices, under the idea that in the future such bulbs would increase or multiply the initial investment paid. The Dutch had “developed” the Futures Market.
The so-called “Tulip-Mania” reached its height in the winter of 1636, when it is reported that some bulbs were transacted up to ten times in one single day. However, no “actual” bulbs were ever delivered, only the contracts were being transferred. By February of 1637, tulip bulb contract prices and the tulip market, in general, collapsed abruptly. No one was buying the contracts and the trade of tulips ground to a halt.
Investors who took loans based on the projected “futures” values of their tulip bulb contracts lost all or were locked into immense debts they had no way of paying back.