thumb|A tulip, known as "the Viceroy" (), displayed in the 1637 Dutch auction catalogue ("Collection of a set of Tulips") by Pieter Cos. Its bulb was offered for sale between [[Dutch guilder|ƒ3,000-4,200, depending on weight (). A skilled artisan at the time earned about ƒ300 a year.]]
Tulip mania () was a period during the Dutch Golden Age when contract prices for some bulbs of the recently introduced and fashionable tulip reached extraordinarily high levels. The major acceleration started in 1634 and then dramatically collapsed in February 1637. It is generally considered to have been the first recorded speculative bubble or asset bubble in history. The term tulip mania is now often used metaphorically to refer to any large economic bubble when asset prices deviate from intrinsic values.
Forward markets appeared in the Dutch Republic during the 17th century. Among the most notable was one centred on the tulip market. At the peak of tulip mania, in February 1637, certain tulip bulbs sold for more than 10 times the annual income of a skilled artisan. Some modern economists have proposed rational explanations, rather than a speculative mania, for the rise and fall in prices. For example, other flowers, such as the hyacinth, also had high initial prices at the time of their introduction, which then fell as the plants were propagated. The high prices may also have been driven by expectations of a parliamentary decree that contracts could be voided for a small cost, thus lowering the risk to buyers.
The 1637 event gained attention in 1841 with the publication of the book Extraordinary Popular Delusions and the Madness of Crowds, written by Scottish journalist Charles Mackay, who wrote that at one point of land were offered for a Semper Augustus bulb. Mackay claimed that many investors were ruined by the fall in prices, and Dutch commerce suffered a severe shock. Although Mackay's book is often referenced, his account is contested. Many modern scholars believe that the mania was not as destructive as he described.
Background and history
thumb|Semper Augustus (17th century) anonymous [[watercolour in the Tulip book of the Six Collection, Rijksmuseum, Amsterdam. The Semper Augustus is famous for being the most expensive tulip sold during the tulip mania. The note states that the specimen was sold for ƒ3000 (~€38.000 in 2024).]]
The Dutch tulip business
The introduction of the tulip to Europe is often attributed to Ogier de Busbecq, the ambassador of Charles V, Holy Roman Emperor, to Sultan Suleiman the Magnificent, who sent the first tulip bulbs and seeds to Vienna in 1554 from the Ottoman Empire. Tulip bulbs, along with other new plant life like potatoes, peppers, tomatoes, and other vegetables, came to Europe in the 16th century. These bulbs were soon distributed from Vienna to Augsburg, Antwerp, and Amsterdam.
Southern Netherlandish botanist Carolus Clusius is largely responsible for the spread of tulip bulbs in the final years of the 16th century; he planted tulips at the Vienna Imperial Botanical Gardens in 1573. He finished the first major work on tulips in 1592, in which he noted the colour variations. Their popularity and cultivation in the Dutch Republic (now the Netherlands) started in earnest around 1593 after Clusius had taken up a post at Leiden University in the newly established Hortus Botanicus. He planted his collection of tulip bulbs in a teaching garden and his private garden in late 1593, and found that they were able to tolerate the harsher conditions of the Low Countries. Shortly thereafter, the tulip grew in popularity. The spring of 1594 is considered the date of the tulip's first flowering in the Netherlands, despite reports of the cultivation of tulips in private gardens in Antwerp and Amsterdam two or three decades earlier. These tulips at Leiden would eventually lead to both the tulip mania and the tulip industry in the Netherlands. Over two raids, in 1596 and in 1598, more than one hundred bulbs were stolen from his garden.
The tulip was different from other flowers known to Europe at that time, because of its intense saturated petal colour. The appearance of the nonpareil tulip as a status symbol coincides with the rise of newly independent Dutch Republic's trade fortunes. No longer under Spanish reign, its economic resources could now be channelled into commerce and the Netherlands embarked on its Golden Age. Amsterdam merchants were at the centre of the lucrative East Indies trade, where one voyage could yield profits of 400%. Around this time, the ceramic tulipiere was devised for the display of cut flowers stem by stem. Vases and bouquets, usually including tulips, often appeared in Dutch still-life painting.
As a result, tulips rapidly became a coveted luxury item, and a profusion of varieties followed. They were classified in groups: the single-hued tulips of red, yellow, or white were known as ; the multicoloured (white streaks on a red or pink background); (white streaks on a purple or lilac background); and the rarest of all, the ('Bizarres') (yellow or white streaks on a red, brown, or purple background). The multicolour effects of intricate lines and flame-like streaks on the petals were vivid and spectacular, making the bulbs that produced these even more exotic-looking plants highly sought after. It is now known that this effect is due to the bulbs being infected with a type of tulip-specific mosaic virus, known as the "tulip breaking virus", so called because it "breaks" the one petal colour into two or more. Less conspicuously, the virus also progressively impairs the tulip's production of daughter bulbs. The historian Philipp Blom theorised in his book, Nature's mutiny, that the mania might also have been driven by the effects of the Little Ice Age, which left most other flowers dry and shrivelled by the temperature, while the tulip was the one which sustained itself.
thumb|upright|right| from the 1637 catalogue by Pieter Cos, During the rest of the year, florists, or tulip traders, signed [[forward contracts before a notary to buy tulips at the end of the season.
Speculative period
thumb|Wagon of Fools by [[Hendrik Gerritsz Pot, 1637. Haarlem weavers chase a wind-borne wagon flying a fool's cap flag. Flora, goddess of flowers, rides aboard to destruction in the sea with the vices Fraud, Gluttony and Avarice, Mrs. Mania, and Idle Hope/<wbr/>Fortuna.]]
right|thumb|A standardised [[price index for tulip bulb contracts, created by Earl Thompson. Thompson had no price data between February 9 and May 1, thus the shape of the decline is unknown. The tulip market is known to have collapsed abruptly in February.]]
As the flowers grew in popularity, professional growers paid higher and higher prices for bulbs with the virus, and prices rose steadily. By 1634, in part as a result of demand from the French, speculators began to enter the market. The contract price of rare bulbs continued to rise throughout 1636. By November, the price of common, "unbroken" bulbs also began to increase, so that soon any tulip bulb could fetch hundreds of guilders. Forward contracts were used to buy bulbs at the end of the season.
Traders met in "college" at taverns and buyers were required to pay a 2.5% "wine money" fee, up to a maximum of ƒ3,- per trade. Neither party paid an initial margin, nor a mark-to-market margin, and all contracts were with the individual counter-parties rather than with the Exchange. The Dutch described tulip contract trading as ('air trade'), because no bulbs were actually changing hands. The entire business was accomplished on the margins of Dutch economic life, not in the Exchange itself.
thumb|[[The Tulip Folly, by Jean-Léon Gérôme (1882)]]
Tulip mania reached its peak during the winter of 1636–37, when some contracts were changing hands five times. No deliveries were ever made to fulfil these contracts, because in February 1637, tulip bulb contract prices collapsed abruptly and the trade of tulips ground to a halt. A contemporary satire suggests that the crisis started to unravel at February 3 in Haarlem, where an auctioneer failed to find willing buyers, despite lowering the asking price several times. The actual circumstances of the crash are unknown. The collapse seems to have occurred by the end of the first week of February 1637, which caused a number of disputes over the extant contracts. On February 7, tulip growers scrambled in Utrecht to elect representatives for a national assembly in Amsterdam. Their situation had become uncertain as the buyers no longer had any interest in honouring the contracts, and there was no legal basis for enforcing them.
By the end of February, the representatives gathered in Amsterdam for deliberations. They decided on a compromise where all contracts entered before December 1636 would be binding, but later contracts could be cancelled by paying a fee amounting to 10% of the price. The matter was brought before the Court, which declined to rule one way or the other and referred the question back to the city councils. The Dutch legislature decided to cancel all contracts to allow fresh deals to be struck during the summer. In Haarlem the issue dragged on, since the government left it to the parties to solve their issues by arbitration or other means. In May the city ruled that buyers could cancel any extant contracts at a fee of 3.5% of the price. The Dutch court system remained busy with a number of tulip disputes throughout 1639. In the end, most contracts were simply never honoured.
Available price data
The lack of consistently recorded price data from the 1630s makes the extent of the tulip mania difficult to discern. The bulk of available data comes from an anonymous satire, Dialogues between Waermondt and Gaergoedt, written just after the bubble. Economist collected data on the sales of 161 bulbs of 39 varieties between 1633 and 1637, with 53 being recorded in the Dialogues.
Ninety eight sales were recorded for the last date of the bubble, February 5, 1637, at wildly varying prices. The sales were made using several market mechanisms: forward trading at the colleges, spot sales by growers, notarised forward sales by growers, and estate sales. "To a great extent, the available price data are a blend of apples and oranges", according to Garber.
Mackay's Madness of Crowds
{| class="wikitable floatright"
|+ Basket of goods allegedly exchanged for a single bulb of the Viceroy Mackay's vivid book was popular among generations of economists and stock market participants. His popular but flawed description of tulip mania as a speculative bubble remains prominent, even though since the 1980s economists have debunked many aspects of his account.