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Mankind is typically irrational. One person has no problem spending 500,000 dollars for a car, another would think this is foolish. Many spend 100 dollars for one meal, while most would spend much less than this for an entire family to eat out. History is certainly filled with outrageous stories illustrating absurd, and in some cases aberrant purchases. In contemporary times people paid millions for website stocks, that soared dizzyingly, and plummeted even faster. It is certain, humanity is constantly duped into believing it can get rich at any turn. Economist Ben Stein often writes in his columns that the best way to get rich is painfully and over time. Get rich quick schemes are just that, schemes. The Dutch famously learned this truth in the late 1630’s with… tulips.
This odd chapter during the Dutch Golden Age reaches a few centuries back into the Medieval Crusades. When crusaders returned from the Holy Land an economic explosion occurred that helped pay for the Renaissance among other things. It made many rich, and brought the peasant from the farm into the newly forming burgs throughout Europe. Trade guilds and leagues formed, as well as banks to fund various ventures. Mercantilism was giving way for Capitalism. Such a transition was not always smooth, and the powers that were did not relish the fact that their feudal controls were slipping.
Iberian nations Spain and especially Portugal, ruled by the Habsburg family, established some of the earliest trade routes to the Ottoman held Holy Land. Spices, gold, silk, jewels, exotic animals, and exotic flowers soon appeared in Europe. Only the rich could afford such opulence at first, however, a rising merchant class soon arrived with its own self-made wealth. Riches were now being measured in golden units called florins due to their being created in Florence, Italy. Medici banks were established throughout major trade centers to store ever increasing wealth. Other rival banks were also formed, some by the returning Templar Crusaders, and others by the European Jewish population.
Spain and Portugal had a well established Jewish population. These Jews became the backbone of the Iberian economy, funding navigation and exploration ventures for decades. The subsequent reconquest of Iberia from Islam brought with it the now infamous Inquisition. Catholicism would not tolerate heretics, and part of the Reconquista, as the Spanish term it, was a forced conversion, or death sentence. Accounts show that many were tortured, and many more died. Jewish fortunes were absconded and lands were stolen. Such putrefying actions forced a large Jewish population to emigrate northward to the tolerant Netherlands.
The Jews settled in Amsterdam, at the time a backwater provincial capital, still owned by the Spanish Habsburg dynasty. Trade was about to change all of this. No change would have been possible without the two previous connections. The Netherlands needed the Jews, as well as the new goods flooding Europe from the Crusades. Together, Amsterdam wrested control of world trade by the late 1500’s. Amsterdam quickly became the main port of call for all aspiring and established merchants. Interestingly enough, after the Jews fled Iberia, Dutch forces took most of Portugal’s overseas empire, which included South Africa, Indonesia, portions of India, and Japan. Spain also fell from it’s zenith, eventually losing a number of wars, including the Dutch War for Independence. Both nations were bankrupt without Jewish capital. Effectively, Catholicism’s Inquisition destroyed both proud nations.
With a newfound economic hotbed, the world watched in wonder as the little swampy region ruled supreme. While the rest of Europe was embroiled in the Thirty Years’ War, the Dutch produced Rembrandt, Vermeer, the VOC (the world’s first stock market of sorts), and obscene wealth. By the 1630’s the strictly Calvinist Dutch were now paying for a new fad, the Tulip.
Tulips are, surprisingly, not native to the region. The first tulips were imported from Turkey, and quickly became fashionable accessories in France. Once French aristocrats were wearing these amazing flowers, Dutch entrepreneurs saw a chance to make money. A market was quickly set up and bulbs were traded. At first bulbs were sold slightly above reason, but within a few months one bulb was sold for 5,200 guilders, about 20 years salary for the average Dutchman! Some merchants sold completely stocked ships and houses for a few of these overly priced flowers. One doctor, who Rembrandt famously painted, even changed his name to Dr. Tulp, Dutch for Tulip.
Then it all came crashing down, to use a trite phrase. People came to their senses one morning in the 1640’s and stopped bulb trading. Huge sums were left on the table with no buyers. The flower lost it’s societal status for the Hyacinth. Merchants were broken, fortunes were lost, and hysteria did show briefly. Stunningly, the panic did not ruin Dutch ventures. That ruin would come later as a faulty diplomacy saw the Dutch trade Manhattan to the English for three spice islands in the East Indies.
Since then, Tulipomania has held a fascination with economic students for it’s implausible stupidity. Funny enough, society still purchases the “next best thing” for ridiculous sums only soon to find out it was all a sham, as fortunes are vainly spent. It is as Mr. Greenspan once called, Irrational Exuberance.
armchaircapitalist 