Tulip Mania

Dobromir Risov April 2025

Intro

In today´s blog I talk about the tulip mania. The tulip mania took place during the Dutch Golden Age. The Dutch Golden Age span from 1588 until 1672. During the tulip mania people were willing to trade a luxurious home in Amsterdam for certain single tulip bulbs. Biologically, tulips are flowers blossoming in spring. They come in different colours and variations. Tulips mainly serve as décor.  In rare instances where  people faced starvation, the bulbs of tulips served as food.

Main

More than half of the world´s tulip production is grown in the Netherlands. From there they are shipped worldwide (Amsterdam Tulip museum). Tulips originate from Central Asia, in Kazakhstan.  They were first mentioned in the 16th century. From Kazakhstan, ambassadors brought them via Austria to the Netherlands. A tulip is also the brand sign of Turkish Airways.

As to the word “mania” it describes a mental illness, characterised by great excitement, euphoria or delusion. The “early” stage of the tulip mania was around the 1620s, some thirty years into the Dutch Golden Age. During the first stage people became excited about the looks of diseased plants as shown below: a diseased plant is one with more than one colour.

3 Stages

During the first stage, solely academics & collectors were interested in tulips. Their interest was for research & hobby.  The first stage lasts until around 1636. From there excitement turned into passion. During the second stage other groups of the population became interested in tulips. Tulip bulbs became high demand. This stage lasted until early 1637, about a year in total. The third stage marks the collapse in demand.

Let´s take a look at the graph below: it covers the years from 1634 - 1637. On the left axis you see the price per half of gram tulip bulbs in guilders, the Dutch currency back then. During 1634-35, the price was at 2,5 guilders. Up to mid 1636, the price reaches 5 guilders. Then the price skyrockets to more than 55 guilders. There´s actually not enough space in the graph to display the hike. That´s an increase by a factor of more than 10.

Pre 1637 price levels might seem “normal” relative to the astronomic 1637 levels, but they weren´t. You see that when you compare tulips to gold. The price for half a gram of gold was at that time around 0.35 guilders. The same quantity of bulbs sold in 1634 for 7 times the price of gold (0.35 guilders * 7 = 2.45 guilders).

Another example for the maniac prices during the second stage: some buyers were offering 12,000 guilders in exchange for 10 bulbs. At that time a smart town house would cost 12,000 guilders.  Bulbs of tulips had transformed their role from a decorative flower to a currency: people were able to buy houses & other goods by using tulips as a means of exchange. Robert Taylor writes about the Tulip mania:

The market dynamics were characterised by a classic case of “irrational exuberance,” with buyers purchasing bulbs not for their intrinsic value, but solely based on the expectation that prices would continue to rise indefinitely. (...) This phenomenon is a prime example of herd mentality.

Summary

Do you see yourself trading your apartment for a bulb?  Today people use the expression tulip mania to describe a phenomenon when the price of an asset cannot be explained with its intrinsic value (i.e. decor) and is seen as a bubble. Other examples for a bubble can be found in the stock markets or in housing in more recent times. I invite you to join my course on personal investing. I present two ways to invest without relying on irrational exuberances.   

Sources: Wikipedia; Oxford Languages Online; farmergracy; Robert Taylor, Investors Commentary;