Speculation in financial markets didn’t start during the dot com boom (and bust) in the late 1990s. In this three-part series, we’re going to take a look at bubbles of the distant (and sometimes not-so-distant) past.
The Dutch Tulip Bubble
In the 1600s, the Dutch went crazy for tulips. So crazy, that the prices for tulip bulbs went up. And up. And up some more.
At the peak of the tulip craze, it is recorded that 40 tulip bulbs sold for 100,000 florins. To put this in perspective, according to Tulipomania, written by Charles MacKay in the 19th century, a skilled laborer might have earned about 150 florins in a year.
According to The International Institute of Social History (and a little bit of conversion from Euros to U.S. Dollars), a Dutch florin in 1634 would be worth about $11.50 today.
In other words, 40 tulip bulbs sold for the equivalent of $1.15 million dollars in 2008, which means each bulb cost about $28,750.
Today, at Breck’s, you can buy tulip bulbs for about a dollar a piece.
The End of the Tulip Mania
As the trade in tulips grew, buyers and sellers began entering into futures contracts that obligated buyers to purchase bulbs at some point in the future. The Dutch parliament passed a law that allowed buyers in these contracts to cancel them for a small fee.
This caused those with buyer’s remorse to get out of the contracts, thus causing the prices to sink.
Tomorrow: Railroads
Railroads used to be the thing. Then they weren’t. The ties on these old railroads disappeared, but not as quickly as the money invested in them.
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