The Price of a Perfectly Ordinary Tulip

The tulip has spent nearly four centuries being blamed for decisions made by people. Whenever something becomes unexpectedly expensive, somebody produces the flower as evidence that everyone else has lost their mind. Cryptocurrency, technology shares, property: sooner or later, a man who has never planted anything explains that we have seen all this before.

The story is wonderfully efficient. Seventeenth-century Dutch people became obsessed with bulbs, paid ridiculous sums and ruined themselves when prices collapsed. An entire financial education can be delivered before the kettle boils.

Unfortunately, the historical record is less obliging. Prices did rise sharply and the market broke in 1637. But the familiar spectacle of a nation abandoning reason owes a considerable amount to the people who subsequently found it useful.

It was not an ordinary tulip

Begin with the object. A rare tulip in the seventeenth century was not equivalent to a bag of bulbs beside the supermarket checkout.

Collectors distinguished varieties, recognised exceptional specimens and cultivated relationships with other knowledgeable enthusiasts. The flower occupied a world of gardens, rarity and connoisseurship. Calling it “just a tulip” is rather like calling a painting “just some canvas”: accurate enough to sound decisive, incomplete enough to explain very little.

Some particularly admired flowers displayed streaked or feathered colours. The Royal Horticultural Society explains that tulip breaking virus could produce these patterns, while also weakening plants.

The buyers did not know the virology. They knew the appearance and its desirability. A feature that helped make a flower commercially attractive was also a symptom of disease.

This is an unusually literal example of a market rewarding an unhealthy condition. The tulip itself was not consulted about the premium.

Supply could not simply be increased

A bulb is also a means of producing more bulbs. Its value to a grower can therefore include future propagation, as well as the pleasure of the next flower.

But plants operate on a timetable that resists enthusiasm. Greater demand does not immediately produce more of a rare variety. Somebody must cultivate it and wait.

Economist Peter Garber’s 1989 analysis of tulipmania examined prices in the context of markets for rare bulbs, including the way a new variety could command a high initial price that declined as supplies increased.

That offers an explanation for some apparently astonishing valuations. A rare plant capable of reproduction is not priced solely as a temporary ornament.

It does not follow that every price in the winter of 1636–37 was sensible. It means the investigation needs to distinguish varieties, quantities and expectations before diagnosing a national psychological episode.

A person paying heavily for something unfamiliar to us is not automatically confused. Sometimes we have simply arrived without learning what is being sold.

The flower was still underground

The transaction introduces another complication. During the speculative winter, bulbs could remain in the ground while agreements concerning their future delivery circulated.

A promised payment is not the same as money already handed over. A contract price is not automatically an amount someone recovered in cash. Once confidence collapsed, questions about which agreements would be honoured became central.

Research published in the Financial History Review describes the prolonged negotiations that followed. Haarlem eventually set compensation at 3.5% of the agreed price for a specified group of contracts.

That is a less immediate story than people exchanging their houses for flowers and discovering the flowers were worthless. It involves promises, disputes and institutions deciding what those promises would require.

The tulip was visible in the eventual bloom. Much of the market existed in what people expected one another to do before it appeared.

The catastrophe became larger in the telling

Historian Anne Goldgar investigated the people and records behind the episode for her book Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age.

Her findings challenge the familiar account of mass participation and national ruin. The trade involved a more limited network, and her archival research did not uncover the wave of tulip-induced bankruptcies found in popular retellings.

That does not make the collapse inconsequential. Broken agreements could damage relationships and reputations as well as balance sheets. In a trading community, discovering that somebody would not honour a commitment was its own kind of shock.

Goldgar also traced the influence of hostile contemporary accounts and their later repetition. Satire about foolish traders became material for histories of foolish trading.

The distinction is easy to lose. A pamphlet mocking speculation tells us something about contemporary attitudes. It is not necessarily a dependable register of what every speculator bought, paid or lost.

We prefer our bubbles botanical

The popular story survives because it supplies such a convenient moral. The participants become people much like us, except conveniently dead and available to demonstrate our superior judgement.

Their chosen object helps. A flower is visibly temporary. It looks absurd beside the idea of a fortune. We can dismiss the valuation without examining the market.

Yet we readily accept high prices for other temporary or non-essential experiences. A meal ends. A concert lasts an evening. A particularly desirable bottle eventually becomes a recycling obligation.

The question is what the buyer expects to receive. Pleasure, status, rarity, future income and resale opportunity are different reasons to pay. They may overlap, but treating them as identical produces a very poor explanation of value.

The tulip becomes suspicious when its desirability is assumed to guarantee another buyer at a higher price. Even then, establishing who held that expectation requires evidence. The presence of an expensive flower does not complete the diagnosis.

The analogy has become a shortcut

Calling a new market tulipmania can identify a useful question. Are prices supported by something beyond confidence that they will continue rising? How much borrowing is involved? What happens if buyers stop arriving?

But the analogy often arrives where those questions should begin and declares the investigation finished.

Two episodes can share excitement and high prices while differing radically in leverage, market size and consequences for people outside the trade. A failed speculation among a limited group and a crisis transmitted through a banking system do not become equivalent because both involved optimism.

Nor does correcting the tulip story prove that present-day speculation is harmless. History cannot provide a verdict on an asset it has never encountered.

The useful work is comparing mechanisms. The easy work is recognising a shape that resembles a story we already know.

The most successful investment was the story

The tulip trade left us a remarkably durable product: an anecdote that appreciates whenever somebody needs to explain another apparent bubble.

Its appeal depends on removing much of the original complexity. Collectors become a nation. Agreements become completed payments. A market collapse becomes a comprehensive social disaster. The resulting lesson is portable enough to fit almost any argument.

The flowers have meanwhile continued with a less dramatic career. People cultivate them, admire them and buy them at prices that reflect the variety and the circumstances. Their survival as desirable objects is not especially surprising. A change in the market did not oblige them to become ugly.

Somewhere, a gardener is deciding whether an unfamiliar tulip is worth the extra money. They may like its colour. They may hope to grow more. They may simply want something their neighbour does not have.

Before explaining that this is how civilisations lose their minds, it might be worth asking which tulip it is.