Fueled by speculative competition
for futures contracts, Tulip Mania gripped the Netherlands in 1630’s leading to
mind-boggling price levels. Mackay (1841)
puts this in context by stating that in 1635 forty bulbs fetched 100,000
florins, compared with just 100 florins for 1 ton of butter! Interestingly, Roubini and Mihm (2011) in their book "Crisis Economics" emphasize
the timeliness this asset bubble had with “the emergence of the Netherlands as
the world’s first capitalist dynamo in the sixteenth and seventeenth centuries”,
and so point to the roots of financial speculation in the emergence of
free-market capitalism. Notably, Garber (1989)
(a prominent commentator on the subject) suggests that this should not be
considered as a case of irrational exuberance, as flower bulbs are prone to
such pricing behavior. The figure below
demonstrates this ‘Tulip Mania’ graphically.
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| Tulip Mania (1636-1637) |
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