The Classic Mania
Brian Trumbore
President/Editor, StocksandNews.com

In light of the absurd bubble in some food prices, namely rice, let's take a look back, almost 400 years ago, to tulipmania and a piece I first ran 9 years ago in this space. Yes, there is a lesson here.

Dim Bulbs

For some of the old manias that I want to discuss the next few weeks, I will be relying heavily on two books; Charles Mackay's "Extraordinary Popular Delusions & the Madness of Crowds," and Charles Kindleberger's "Manias, Panics, and Crashes." As we explore tulipmania, together, I don't need to remind you of the eerie comparisons to more recent manias we've experienced.

The tulip was introduced into Western Europe about the middle of the 16th century (1559 to be exact) from its home in Turkey. For the next 10 years after its introduction, tulips were much sought after by the wealthy. Until the year 1634 the tulip gradually increased in reputation and soon it was deemed a proof of bad taste in any man of fortune to be without a collection of them. The popularity spread to the middle classes of society as well.

The rage among the Dutch to possess them was so great that the ordinary industry of the country was neglected, and the population, even down to its lowest dregs, embarked in the tulip trade.

Excitement began in earnest in September of 1636, when bulbs were no longer available for examination, having been planted to bloom the following spring in their normal cycle. The excited bidding of November, December 1636 and January 1637 was conducted with no specimens in evidence.

Regular markets for the sale of tulips were established on Stock Exchanges throughout Holland. Gambling took hold. At first, as in all these mania, confidence was at its height and everybody gained (can you say, day traders?!). Actually, these day traders were called "tulip-jobbers."

Everyone imagined that the passion for tulips would last forever. The riches of Europe would be concentrated in Holland, poverty banished from its favoured clime. Nobles to chimneysweeps dabbled in tulips. Property was converted into cash and invested in the flowers.

Let's look at an example of a typical transaction. With no bank credit at this time, down payments were frequently made in kind. In one case, a pound of White Crowns, 525 florins, was to be paid on delivery (presumably the next June, 1637), but four cows were to be delivered at once to the dealer. Other down payments consisted of tracts of land, houses, furniture, silver and gold vessels, paintings, a suit and a coat, a coach and dapple-gray pair (of horses); and for a single Viceroy (rare), valued at 2500 florins, two lasts (a measure which varies by commodity and locality) of wheat and four of rye, eight pigs, a dozen sheep, two ox-heads of wine, four tons of butter, a thousand pounds of cheese, a bed, some clothing and a silver beaker.

So the prices went higher and higher late 1636, early 1637, when at last the more prudent began to see that this folly could not last forever. And prices fell, never to rise again. Panic spread among the dealers. For example, 'A' may agree to purchase ten Semper Augustines from 'B' at 4000 florins each, six weeks after signing the contract. B would be ready with flowers at the appointed time; but the price had fallen to 300 or 400 florins, and A would then refuse either to pay the difference or receive the tulips. Soon, the cry of distress sounded everywhere, and each man accused his neighbor. The few who got out in time hid their wealth, not wanting neighbors to know.

The matter was finally referred to the Provincial Council at the Hague who sat on it for 3 months before wimping out. There was no court in Holland that would enforce payment of the contracts. The question was raised in Amsterdam, but the judges unanimously refused to interfere on the grounds that debts contracted in gambling were no debts in law. By the middle of 1637 tulipmania was over and it took quite awhile before the Dutch economy recovered.

**Mackay had this supposedly true tale in his book. "It seems that a wealthy merchant, who prided himself not a little on his rare tulips, received upon one occasion a very valuable consignment of merchandise for the Levant. Intelligence of its arrival was brought him by a sailor, who presented himself for that purpose at the counting-house, among bales of goods of every description. The merchant, to reward him for his news, munificently made him a present of a fine red herring for his breakfast. The sailor had, it appears, a great partiality for onions, and seeing a bulb very like an onion lying upon the counter of this liberal trader, and thinking it, no doubt, very much out of its place among silks and velvets, he slyly seized an opportunity and slipped it into his pocket, as a relish for his herring. He got clear off with his prize, and proceeded to the quay to eat his breakfast. Hardly was his back turned when the merchant missed his valuable Semper Augustus, worth 3000 florins. The whole establishment was instantly in an uproar; search was everywhere made for the precious root, but it was not to be found. At last some one thought of the sailor." You can guess the rest of the story. They found him, eating the last morsel of his "onion." The sailor was jailed for felony theft.

Wall Street History returns next week.

Brian Trumbore