The History : Famous Crashes of the West,Part-1



Our first adventure to Manialand takes us to 17th century Holland. The Dutch, long known for their stern, careful business practices, were then gripped by an extraordinary obsession, the like of which the world has not seen again. The object of this extraordinary mania was the tulip bulb. The tulip, the national symbol of the Netherlands till today, was first introduced to Europe in the 16th century from Turkey. Belonging to the onion family, the flowers are grown from bulbs (the swollen portion at the base of the stem). Propagation is very slow for it takes a season for a plant to reproduce itself. Occasionally, mutations or diseases can cause unusual colours or patterns to appear and these then become new varieties. Due to slow propagation, new varieties which are beautiful can be very expensive as a result of popular demand. The 17th century Dutchmen developed a great passion for tulips and rich people showed off their tulip collection with as much pride as their rare paintings. The growing of tulips became a national industry. As is usual for all speculative manias, there were sound economic reasons to begin with. Tulips are indeed beautiful flowers and were in much demand all over Europe. Growing tulips was indeed a very profitable industry. However, as with all manias, the profits of the pioneers attracted more and more people into the business. The latecomers, not willing to undergo the long period necessary for the establishment of a nursery, bidded up the price of the existing limited supply.

By the 1620s, some of the rare varieties were beginning to command astronomical prices. Semper Augustus (a beautiful white and blue flower with red stripes) were being sold for 1,200 florins. In perspective, this Was equivalent to the cost of 10,000 pounds of cheese or 120 sheep! At this price level, the earlier entrants to the business were making incredible profits and tales of such gains naturally pulled in even more people. By 1634, the race among the Dutch to cultivate tulips was so great that the ordinary businesses of the country were neglected.

Everyone in the country, ‘even to its lowest dregs’, was involved.The same Semper Augustus had by then reached an incredible price of 5,500 florins, an equivalent of 12 acres of good land!

MacKay related the woeful tale of a sailor of a newly-docked ship who was sent as a messenger to inform an Amsterdam merchant that his consignment of new bulbs from Turkey had just arrived. The merchant was so pleased with the news that he rewarded the sailor with a herring for his breakfast. The sailor, being fond of onions, saw a bulb which looked like an onion on the table and assumed it to be one. He picked up the bulb, peeled it and proceeded to eat the ‘onion’ and the herring with great enjoyment. Little did he dream that he had just consumed a Scraper Augustus worth over 3,000 florins. When the merchant discovered the sailor’s act, he nearly went mad with rage. The sailor was sent to prison for several months.

By 1636, the trade in tulips became so great that regular markets were established for them in Amsterdam, Rotterdam, Harleem, Leyden, Alkmar and other towns. For the first time, symptoms of gambling became apparent. The stock brokers, always alert for a new speculation, switched to tulips and used every means at theirdisposal to cause fluctuations in prices. As in all manias, confidence and prices soared to their highest just before the collapse of the market. Everyone imagined that the passion for tulips would last forever. Wealthy people from all over the world sent in large sums of money to Holland to invest in the boom. Houses, land and valuables were sold at ruinously low prices so that their owners could take part in tulip speculation. However, the seed of its destruction had by then been sown. The huge increase in money supply and the sense of prosperity created by populace’s holding of tulip bulbs caused the prices of everyday necessities to increase by considerable degrees. The tulip operations became so large and intricate that it was necessary to draw up a code of law. Tulip notaries were appointed (in place of public notaries) to oversee tulip-trade operations. In small towns where there were no regular tulip exchange, the taverns became public exchanges.

Like all wonderful dreams or delightful parties, good things do eventually come to an end. On a day in February 1637, about fifteen years after the beginning of the mania, a speculator bought a bulb and found that he could not resell it for a higher price. He was thus forced to reduce its price to dispose of it. This move caused a panic among all other speculators and the rush to sell became increasingly intense. The prices fell drastically and within a short time, tulips which once commanded the price of houses became as worthless as onions.

** Charles MacKay, Extraordinary Popular Delusions and the Madness «J Crowds, Farrah,Strain and Giroux l932

** lbid

My Name is YF Boon. I've been at Investments field over 10 Years. Nowadays,There are plenty of scams online.Therefore, i am contribute a 100% Real Investments tips and Sharing all most Successful Traders experience about investing in Stock Market and Foreign Currency.

Leave a Reply

Your email address will not be published. Required fields are marked *