The Tulip Crisis of 1637
This chapter examines the assumption that there is a relationship between innovations and economic crises, with a particular focus on the Amsterdam Tulip Crisis of 1637. The following question is examined: Is there a relationship between innovations and e
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Introduction One February day in 16371, a Dutch merchant, Koestler, paid 6650 guilders for a bunch of tulip bulbs.2 This was a huge sum of money at a time when the average family could live for a year on an income of 300 guilders.3 How was this possible? How could a few tulip bulbs be sold for such an enormous price? In other words, the price paid by Koestler would provide approximately 20 years’ income for an average Dutch family. It was not as if Koestler was a lover of flowers or intended to plant the tulip bulbs so he could enjoy the sight of the flowers when they bloomed in the following spring. No, he was a merchant who intended to make a large profit by re-selling them. However, no one had seen the 1
Goldgar (2007: 1). The tulip legend: According to legend, the tulip originated in ancient Persia, and concerns a young couple in love. Tragedy struck when the young woman was killed by robbers. In his despair the young man rode his horse straight off a cliff and died. The blood of the young man ran into the soil, where later there grew beautiful red flowers that no one had ever seen before; these were the first tulips. The flowers have a shape resembling a turban and originate from the Persian word “turban”: toliban. 3 Dash (2010: xv). 2
© The Author(s) 2017 J.-A. Johannessen, Innovations Lead to Economic Crises, DOI 10.1007/978-3-319-41793-6_3
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Innovations Lead to Economic Crises
“economic bubble” coming. In fact, few people have the ability to know when an economic bubble is developing; many bubbles burst before and after the tulip bubble. It is only when an economic bubble bursts that it is possible to speak of an economic and social crisis. However, being able to describe how an economic bubble bursts does not necessarily provide insight into its causes. Detailed descriptions of the tulip bubble have been given by Goldgar4 and Dash5 as well as Mackay.6 Mackay is perhaps the closest in providing an explanation of its causes; he describes the organisational and financial innovations, but without linking these to the development of the bubble.7 In a four-year period (1633–1637) there was a drastic rise in the price of tulip bulbs, especially between the summer of 1636 and February 1637.8 Many people had become very rich from trading in those small tulip bulbs. Indeed, the more people who became rich, the more who were attracted into the tulip market in order to share in the wealth created.9 What was the rationale behind the fact that so-called “reasonable people” could buy a bunch of tulip bulbs for a sum of money equal to an average family’s 20-year income? Was it madness or mania; or was it an extremely skewed distribution of income; or were there other reasons that drove people to trade in tulip bulbs? One week after Koestler had paid such a huge sum for his bunch of tulip bulbs, prices fell everywhere. Had people suddenly gained special insight into the market? Perhaps it may be presumed that Koestler had exceeded an invisible threshold, and when this threshold was breached, a so-called “dam” col
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