What was the tulip bubble

The example of Tulipmania is now used as a parable for other speculative assets, such as cryptocurrencies or dot-com stocks. Tulipmania reflects the general cycle of a bubble, from the irrational biases and group mentalities that push prices of an asset to an unsustainable level, to the eventual collapse of those inflated prices. Some historians have argued that the real tulip bubble was quite small, but exaggerated by later retellings.

Article Sources. Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts.

We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

Compare Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation.

This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace. Related Terms History of the Dutch Tulip Bulb Market's Bubble The Dutch tulip bulb market bubble occurred in Holland during the early s when speculation drove the value of tulip bulbs to extremes. Overreaction Definition Overreaction is an emotional response to news about a security, led by either greed or fear, which causes it to become either overbought or oversold.

What Is the Bubble Theory? Bubble theory is a theory that markets occasionally push prices above their true values, leading to large or persistent overvaluations in asset prices.

Learn About a Bubble in Economics A bubble is an economic cycle that is characterized by a rapid economic expansion followed by a contraction. Learn About the European Sovereign Debt Crisis The European debt crisis refers to the struggle faced by Eurozone countries in paying off debts they had accumulated over decades. It began in and peaked between and What Is the Internet Bubble?

Many tulips were far cheaper. With one or two exceptions, these top buyers came from the wealthy merchant class and were well able to afford the bulbs. Far from every chimneysweep or weaver being involved in the trade, the numbers were relatively small, mainly from the merchant and skilled artisan class — and many of the buyers and sellers were connected to each other by family, religion, or neighbourhood.

Sellers mainly sold to people they knew. When the crash came, it was not because of naive and uninformed people entering the market, but probably through fears of oversupply and the unsustainability of the great price rise in the first five weeks of None of the bulbs were actually available — they were all planted in the ground — and no money would be exchanged until the bulbs could be handed over in May or June.

So those who lost money in the February crash did so only notionally: they might not get paid later. Anyone who had both bought and sold a tulip on paper since the summer of had lost nothing.

Only those waiting for payment were in trouble, and they were people able to bear the loss. No one drowned themselves in canals. I found not a single bankrupt in these years who could be identified as someone dealt the fatal financial blow by tulip mania. The Dutch economy was left completely unaffected. The provincial court of Holland suggested that people talk it out among themselves and try to stay out of the courts: no government regulation here.

Later bubbles were much more consequential. Perhaps the greatest boom and crash in history was the railway mania of the s. Influential commentators waved away warnings of financial trouble ahead, and encouraged investors to bid up stocks in UK railway companies to ridiculous prices.

And right in the middle of it all was Charles Mackay himself, urging people to put their money into the railways and pooh-poohing those who were concerned that the whole affair would end in tears. He had become famous by mocking the bubbles of the past - but had rather less to say about the far more serious bubble that he himself had helped to inflate.

Hindsight makes everything clear, but while you're caught in the middle of a bubble, the view is as confusing as Adriaen Pauw's garden of mirrors.

The author writes the Financial Times's Undercover Economist column. Boom or bust: What culture tells us about money. The Library of Mistakes. The truth about Tulip Mania. Of bulbs and bubbles. Image source, Getty Images. Image source, Alamy. Then, very suddenly, it was over.

Is Charles Mackay to blame for the mythology surrounding Tulip Mania? And not always honestly. Adriaen Pauw's clever use of mirrors magnified his small tulip collection to great effect.

More things that made the modern economy:. What can bees teach economists about how markets work? One example Goldgar gives is fish auctioneer Adriaen Coenen, whose watercolor-illustrated manuscript Whale Book allowed him to actually meet the President of Holland. And when Dutch botanist Carolus Clusius established a botanical garden at the University of Leiden in the s, the tulip quickly rose to a place of honor. Originally found growing wild in the valleys of the Tien Shan Mountains at the border where China and Tibet meet Afghanistan and Russia , tulips were cultivated in Istanbul as early as By the 15th century, Sultan Mehmed II of the Ottoman Empire had so many flowers in his 12 gardens that he required a staff of gardeners.

Tulips were among the most prized flowers, eventually becoming a symbol of the Ottomans, writes gardening correspondent for The Independent Anna Pavord in The Tulip. The Dutch learned that tulips could be grown from seeds or buds that grew on the mother bulb; a bulb that grows from seed would take 7 to 12 years before flowering, but a bulb itself could flower the very next year.

The pattern was later discovered to be the result of a mosaic virus that actually makes the bulbs sickly and less likely to reproduce. After all the money Dutch speculators spent on the bulbs, they only produced flowers for about a week—but for tulip lovers, that week was a glorious one.

Tulips required expertise, an appreciation of beauty and the exotic, and, of course, an abundance of money.