Tulipmania. It's often invoked by economists and historians as a warning against avarice and manias run amok. The setting is the Netherlands in the front half of the 17th century.
As economist John Kenneth Galbraith writes in A Short History of Financial Euphoria, what started as the acquisition of prestige and status, for those who possessed the then novel tulip bulbs, in 1636, turned into wild speculation over successive price increases. Specifically, competition over tulips turned into mania, with single bulbs trading for new carriages and homes, or fetching as much as $25-50,000 each.
Demand reached such heights that the Amsterdam Stock Exchange developed a futures market for the bulb.
The market, as well as the dreams of many speculators, would collapse under the weight of its own nonsense, and spectacular avarice. As sellers demanded that their tulip contracts be enforced, they were disappointed when their petitions fell on the deaf ears of the courts. Because the speculation in Tulips market had little to do with the production of actual goods and services, the courts viewed Tulipmania as little more than a gambling operation.
As is the case throughout these histories, panic, default, and bankruptcy followed. “No one knows for what reason” the speculation and mania ended, Galbraith wrote, but there’s little doubt common sense finally prevailed in a market spun out of control by deluded buyers and sellers.
I liked the story so much, I included it in my book, The Myth of the Free Market.
While the stories that emerged after Tulipmania are often filled with tales of economic destruction and chaos, historian Anne Goldgar has another take on the series of events. As the Smithsonian points out, in Goldgar's Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age, we're told that "there weren't that many people involved and the economic repercussions were pretty minor."
Goldgar goes on to point out that she "couldn't find anybody that went bankrupt" and that "a wholesale destruction of the economy" didn't happen.
If this is true, then why do we speak of Tulipmania as some kind of Aesop's fable warning us about the dangers of avarice and manias merged together? According to the Smithsonian, for this "we have tetchy Christian moralists to blame ...". The idea "that God punishes people who are overreaching" resonated with early Dutch Calvinists who were worried about societal decay after Tulipmania.
Interesting, to say the least.
For more on the story of Tulipmania (that never happened?), click here.
- Mark
As economist John Kenneth Galbraith writes in A Short History of Financial Euphoria, what started as the acquisition of prestige and status, for those who possessed the then novel tulip bulbs, in 1636, turned into wild speculation over successive price increases. Specifically, competition over tulips turned into mania, with single bulbs trading for new carriages and homes, or fetching as much as $25-50,000 each.
Demand reached such heights that the Amsterdam Stock Exchange developed a futures market for the bulb.
As is the case throughout these histories, panic, default, and bankruptcy followed. “No one knows for what reason” the speculation and mania ended, Galbraith wrote, but there’s little doubt common sense finally prevailed in a market spun out of control by deluded buyers and sellers.
I liked the story so much, I included it in my book, The Myth of the Free Market.
While the stories that emerged after Tulipmania are often filled with tales of economic destruction and chaos, historian Anne Goldgar has another take on the series of events. As the Smithsonian points out, in Goldgar's Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age, we're told that "there weren't that many people involved and the economic repercussions were pretty minor."
Goldgar goes on to point out that she "couldn't find anybody that went bankrupt" and that "a wholesale destruction of the economy" didn't happen.
If this is true, then why do we speak of Tulipmania as some kind of Aesop's fable warning us about the dangers of avarice and manias merged together? According to the Smithsonian, for this "we have tetchy Christian moralists to blame ...". The idea "that God punishes people who are overreaching" resonated with early Dutch Calvinists who were worried about societal decay after Tulipmania.
Interesting, to say the least.
For more on the story of Tulipmania (that never happened?), click here.
- Mark
No comments:
Post a Comment