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Tulipmania: A 17th-Century Market Bubble

Tulipmania occurred in the Dutch Republic during the early 1600s when tulip bulbs rose dramatically in value. Speculators paid increasingly high prices for tulip bulbs with rare colors and variegated patterns, with one bulb selling for the price of a house. However, by February 1637 the bubble burst as prices collapsed and no buyers could be found for the bulbs. Factors like volatility in prices, lack of regulation in futures contracts, and unrealistic price increases led to the dramatic crash in the tulip market.

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Alvaro Lopez Angulo
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120 views11 pages

Tulipmania: A 17th-Century Market Bubble

Tulipmania occurred in the Dutch Republic during the early 1600s when tulip bulbs rose dramatically in value. Speculators paid increasingly high prices for tulip bulbs with rare colors and variegated patterns, with one bulb selling for the price of a house. However, by February 1637 the bubble burst as prices collapsed and no buyers could be found for the bulbs. Factors like volatility in prices, lack of regulation in futures contracts, and unrealistic price increases led to the dramatic crash in the tulip market.

Uploaded by

Alvaro Lopez Angulo
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPT, PDF, TXT or read online on Scribd
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TULIPAMANIA

Where are tulips from?


Tulips originally came from the Ottoman Empire (Turkey, Iran, Pakistan, Afghanistan and other parts of central Asia ) Tulips grow from bulbs, and can be propagated through both seeds and buds. Seeds from a tulip will form a flowering bulb after 712 years.

How where they introduced?


The were introduced in Holland in 1593 when Carolus Clusius became the Head Botanist at the University of Leiden The flower rapidly became a luxury item and a status symbol, and a profusion of varieties followed (Coulouren, Violetten, Bizarden)

Classification
Growers named their new varieties with exalted titles. Many early forms were prefixed Admirael , often combined with the growers' names. Generael was another prefix that found its way into the names of around thirty varieties. This growers would grow flowers with vivid colours, lines, and flames on the petals. Some of their extravagant attempts to achieve the desired forms, shapes and colours was to sink the bulbs in wine for sometime or honey for a long time

The beginning
The growing popularity of tulips in the early 1600s caught the attention of the entire nation. As the Business became seasonal and of great importance, flower-traders found out a new way of making business. So during the rest of the year, traders signed contracts before a notary to purchase tulips at the end of the season. (What now its called futures contracts)

The development
As the flowers grew in popularity, professional growers paid higher and higher prices for bulbs with the most extravagant forms and colours. By 1634, in part as a result of demand from the French, speculators began to enter the market. By 1636, tulips were traded on the exchanges of numerous Dutch towns and cities. This encouraged trading in tulips by all members of society. The contract price of rare bulbs continued to rise throughout 1636. That November, the contract price of common bulbs without vivid colours or rare forms also began to rise in value.

Examples of sales
By 1635, a sale of 40 bulbs for 100,000 florins was recorded. A skilled labourer might earn 150 florins a year. According to the International Institute of Social History, one florin had the purchasing power of 10.28 in 2002 There are even cases in which people sold or traded their other possessions in order to speculate in the tulip market, such as an offer of 12 acres (49,000 m2) of land for one of two existing Semper Augustus bulbs.

Semper Augustus

Why did this finished?


On the morning the 5th of February 1637, a lot of 99 tulips were put up for auction, and were sold for the price of 90,000 florins, which actual equivalent is to 10 million dollars. The following day another lot of tulips was put up for auction, but no buyers were found. At this moment, and in the 6 following days, the speculative bubble exploded and the tragic collapse occurred. People noticed that the high prices werent reasonable, and everyone now wanted to sale.

Other main reasons


Volatility Futures contracts were to be interpreted as option contracts. Future contracts had no guarantee

Lack of regulation

Consecuences
Economic concecuences Appear of future and option market Change in the mentallity
Art Religion

Allegory of Tulipmania

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