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While traveling through the Ottoman Empire (modern-day Turkey), a French botanist stumbled upon a beautiful flower by the roadside. Pointing to the flower, he asked a nearby farmer wearing a turban about its name. The farmer, mistakenly thinking his turban was being praised, replied "Tulband" (Turban). It's said that this amusing misinterpretation became the origin of the flower's name: tulip. In this article, we delve into the global phenomenon surrounding the tulip, known as the 'Tulip Bubble', the world's first financial bubble.
In the 1600s, the Netherlands, having achieved independence from Spain, was rapidly expanding as a global superpower with colonies worldwide. The country's flat, fertile terrain, devoid of high mountains, made it an ideal location for cultivating tulips. As the tulip's popularity soared in Europe, it became a symbol of wealth and the object of intense speculation. The Dutch became utterly enthralled with tulips.Satirical drawings depicting monkeys trading tulips, mocking the Tulip Bubble, were also produced during this period.
Tulips have a unique characteristic. A bulb from a plain red or white tulip could, the following year, produce a flower with an overlapping two-tone pattern. Such intricate patterns were traded at particularly high prices. These mutations were caused by viral infections, making these mutated tulips susceptible to disease, thus harder to propagate. Their rarity drove prices even higher.
The photo displays the premium tulip variety, Semper Augustus.
Futures trading further accelerated the tulip bubble. Promissory notes for tulip bulbs expected to be produced the following year were issued. One would pay a fee now to receive the promissory note, and once the bulb was ready the following year, they would hand over the agreed amount and the note in exchange for the bulb. Some individuals would buy these notes from tulip farmers, then sell them, before the bulb even matured, to someone else for a profit.
There were also those who sold promissory notes for bulbs they had no intention of producing, only to quickly disappear. But those who bought non-existent bulbs could avoid loss by selling their notes to another party. This cycle drove the price of tulip bulbs up exponentially. The premium tulip variety 'Semper Augustus', introduced earlier, was said to be priced between 30 to 60 times the average annual income of a Dutch citizen at the time - enough to purchase a house. Many speculators invested their profits in luxury items like carriages and horses, believing in the continuous appreciation of their investments.
On February 3, 1637, the price of bulbs suddenly plummeted to less than 1% of its peak value, causing the bubble to burst. The Tulip Bubble and its subsequent collapse resulted in many individuals either amassing or losing vast fortunes overnight. It is said that the aftermath of the Tulip Bubble cast a prolonged economic shadow over the entirety of the Netherlands.
