tulip mania market crash

Tulip mania 2 of 3

As soon as this news reached the ears of speculators, the Tulip mania was underway. The factors which helped spark and start this mania are low barriers for entry which allows anyone including bakers, weavers, spinners and peasants to enter the speculative trade of bulb cultivation. Another is that other speculative Mediums were already expensive like East India stocks and expensive property prices. However, the great Amsterdam merchants continued to invest their profits in real estate and the wealthy bulb collectors turned their backs as soon as prices began to reach extravagant heights. These two groups could have stabilized the price of the bulbs and prevented a collapse, but they could have seen that the price is way too much to pay for flowers and it is just an expression of wealth and no other utility. On the other hand, other people aspiring for new wealth continued to speculate on the Tulip bulb.

So that the extravagant price of the bulbs could be justified, for comparison, the annual salary range in the Dutch republic was between 200 to 400 Florins. A small house in Amsterdam would cost around 300 to 500 florins depending on location. Lets zoom in for average monthly salaries in the Netherlands which is about 25 Florins. Now, a General Tulip bulb of ten aces rose from 95 Florins to a peak of 900. A pound of yellow Croenen rose from 20 Florins to a peak of 1,200 Florins, and on top of them all, the Semper Augustus from 2,000 Florins to about 8,000 or even more. The lesser ranking varieties such as the Viceroy sold from 3,000 to twice its value. For utility comparison, 3,000 Florins would have bought four Oxen, eight pigs, 54,000 pounds of wheat, a dozen sheep, a pair of wine hogsheads, 4 tuns of beer, 4,000 pounds of butter, 6,000 pounds of cheese, a bed, and a wardrobe of clothes.

Most speculators bought and quickly sold the bulbs for profit, contributing more to the price bubble. Some speculators are beginning to worry about how long the Tulip mania would last, and when asked, one would say that three years should be good enough. The price of Tulips has gone so far that parts used to be weeded out were sold for a decent amount of money. When the demand for any item overwhelms what could be produced or delivered an inevitable event would certainly occur. By February of 1637, the mania finally ended. The Tulip market crashed, however the effects on the surrounding economy was little because major merchants had minimum exposure on the bulb trade. As always, the little speculator was affected the most. Some sold their houses just to buy the bulbs and turn a profit, but it never materialized where according to Haarlem, the center for bulb trading, there were no more buyers as the slide in price continues.

Tulip mania 2 of 3

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