Introduction

With today’s financial markets in a constant state of panic, everyone is studying the Dutch Tulip Mania of 1637, searching for possible solutions to our own economic crisis. You can hardly open up a newspaper or a magazine today without finding some reference to the 17th-century Dutch financial disaster.

So, just what are the similarities between the Dutch Tulip Mania of 1637 and our present economic woes, and how can we learn from both? To answer those questions, I have enlisted the assistance of Ian McShane, an esteemed economic person, sometimes referred to in financial circles as an “economist.”

Ian McShane needs no introduction. The Professor, as he likes to be called, is well known from Bunkie all the way to Back Brusly. His fame would have spread even farther if not for his irrational fear of crossing railroad tracks, which prevented him from ever reaching Front Brusly. With a B.S. in BS, he is well suited to explain complex financial matters to people like you and me who don’t know any better.

The Professor’s reputation precedes him. One former teacher said of him, “There is nothing you can teach a man like him.” Another colleague said of him, “He is only 55 but has the mental faculties of a man three times his age.”

The Professor is considered by many to be an expert in the field of the Dutch Tulip Mania, having spent many years in the coffeehouses of Amsterdam, smoking dope and interviewing as many people as possible with any recollection of Holland’s famous economic disaster. Although he didn’t meet anyone who had actually experienced the Dutch Tulip Mania of 1637 (or “the Mania,” as most locals call it), he did interview quite a few people who claimed to have experienced it, and the data obtained from those interviews, along with the Professor’s own personal recollections, later formed the basis of the Professor’s most well-known work, Reefer Madness.

And now, the Professor. Pay attention, and save your questions until the end.

– Antonio Winnebago

A Disambiguation and Taxonomic Categorization of the Irrational Exuberance of the Dutch Tulip Mania With Concurrent Economic Comparatizations

By Professor Ian McShane

So, to wrap up, flowers are to be smelled and not invested in. Thank you …

Sorry. I seem to have overestimated the financial sophistication of my readers.

Well, let’s start from the beginning. The Dutch Tulip Mania was so named because it occurred in the country sometimes referred to as “Holland,” which is actually “The Netherlands,” although the people who live there are commonly referred to as “Dutch.” So, as we can see, in 1637 the stage was set for a major economic crisis, brought on by the pre-existing identity crises.

As you have probably already surmised, the downfall of the Dutch was tulips. Tulip cultivation began in the Netherlands in the 1590s from tulip bulbs sent to Holland from Turkey. Tulips rapidly became a coveted luxury item and status symbol.1

By 1636, the demand for tulips was so high that, at the end of the tulip-growing season, contracts to buy tulip bulbs in the future were bought and sold by investors. The Dutch called this speculation in tulip bulbs that did not yet exist windhandel (literally, “trading in the wind”).2 The concept of windhandel is analogous to our recent experience of banks buying and selling subprime mortgage derivatives, which we in America now call pissinginthewindhandel.

People began purchasing bulbs at higher and higher prices, intending to sell them for a profit. Purportedly, one Amsterdamer made 60,000 gilders in four months, when his annual salary as a burgomaster (mayor) was only 500. (At the time, a ThighMaster was selling for only 24.95 gilders, so obviously, the whole economic system was out of whack.)3

Tulip mania raged out of control until February 1637, when the demand for tulips suddenly collapsed. Prices plummeted, and the speculative bubble burst. In a few days, hundreds were ruined. Among the casualties left out in the cold was Jan van Goyen, the Leiden painter. It is remarkable that Rembrandt was not involved.

So, back to our original question: What are the similarities between the Dutch Tulip Mania and the present economic crises, and how can we learn from both?

In summary: In [1593/2007], [tulips/subprime mortgage derivatives] were brought from [Turkey/the depths of hell] and introduced to the [Dutch/poor, unsuspecting, innocent bankers]. The novelty of the commodity made it widely desirable and therefore extremely pricey.

Everyone began to deal in [bulbs/bad loans], essentially speculating on a market that was thought to be boundless. The wholesale buyers began to fill up inventories for the upcoming [growing/foreclosure/football] season, reducing the supply further, exacerbating the scarcity and raising demand. Soon, prices were rising so fast and high that people were seduced by the perceived easy profit.

Caught up in the mania, people traded their [land/homes/401(k)s] to get more [tulip bulbs/subprime derivatives/Xanax]. Many deluded investors persisted in their belief that they could unload their over-valued inventories to the hapless and unenlightened [village idiots/banks/insurance companies], thereby reaping enormous profits.

Needless to say, the prices were not an accurate reflection of the intrinsic value of a [tulip bulb/promise to pay from someone who can’t even afford to pay attention]. As in most speculative bubbles, eventually, some circumspect investors decided to sell and realize their profits. A domino effect of progressively lower and lower prices ensued as everyone tried to sell, to recoup at least some of their investment.

Soon, investors began to realize they had traded their [land/homes/401(k)s] for a piece of [greenery/paper/sh–t]; economic pandemonium ensued. Prices cratered, causing people to panic and to [sell regardless of losses/ask for a government bailout]. The government attempted to step in and halt the crash by offering to [print more gilders/borrow more money from China/do a little dance and get down tonight]. But prices plunged even lower, rendering any government bailout superfluous.

The [tulip bulb/housing] bubble burst, and losses were such that the whole credit system, not merely for [tulips/homes], but also for [turnips/rutabagas/SUVs] was endangered. Everyone suffered economic hardship from the market crash and its aftermath, but the hardest hit was your average [Joe Burgomaster/Big Three Automaker].

In conclusion: (1) Although we can certainly learn from the mistakes of the past, yesterday’s solutions are not necessarily the cure for tomorrow’s problems, and as far as the day after tomorrow, you can forget it. (2) Bubbles can be a bitch, but not all bubbles are bad. If you’ll recall, Glenda the Good Witch always traveled in one, and (3) Remember to always stop and smell the roses, but don’t bet the farm on flower futures.

1 Mackay, Charles. Memoirs of Extraordinary Popular Delusions and the Madness of Crowds. London: Office of the National Illustrated Library. 1852.

2 Goldgar, Anne. Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age. University of Chicago Press. 2007.