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Tulipmania,
part II
Brian
Trumbore
President/Editor, StocksandNews.com
Last week I retold the story of tulipmania,
primarily from the eyes of Charles Mackay's 1841 "Memoirs
of Extraordinary Popular Delusions." Today, I thought
we'd look at Johann Beckmann (1739-1811) and his version
of the events of 1637, as told in his "Beytrage zur
Geshichte der Erfindungen," which most peg as being
originally published in 1783. And how did I stumble
on this? Let's just say I purchased a series of very
expensive books and I'll be damned if I'm not going
to use them. The following Beckmann passage is from
the "Great Bubbles," edited by Ross B. Emmett.
---
"The
price of tulips rose always higher from the year 1634
to the year 1637; but had the object of the purchaser
been to get possession of the flowers, the price in
such a length of time must have fallen instead of
risen. 'Raise the prices of the productions of agriculture,
when you wish to reduce them,' says Young; and in
this he is undoubtedly right, for a great consumption
causes a greater production?.
"During
the time of the Tulipmania, a speculator often offered
and paid large sums for a root which he never received,
and never wished to receive. Another sold roots which
he never possessed or delivered. Oft did a nobleman
purchase of a chimney-sweep tulips to the amount of
2,000 florins, and sell them at the same time to a
farmer; and neither the nobleman, chimney-sweep or
farmer had roots in their possession, or wished to
possess them. Before the tulip season was over, more
roots were sold and purchased, bespoke and promised
to be delivered, than in all probability were to be
found in the gardens of Holland; and when Semper Augustus
was not to be had, which happened twice, no species
perhaps was oftener purchased and sold?.
"To
understand this gambling traffic, it may be necessary
to make the following supposition. A nobleman bespoke
of a merchant a tulip-root, to be delivered in six
months, at the price of 1,000 florins. During these
six months the price of that species of tulip must
have risen or fallen, or remained as it was. We shall
suppose that at the expiration of that time the price
was 1,500 florins; in that case the nobleman did not
wish to have the tulip, and the merchant paid him
500 florins, which the latter lost and the former
won. If the price was fallen when the six months were
expired, so that a root could be purchased for 800
florins, the nobleman then paid to the merchant 200
florins, which he received as so much gain; but if
the price continued the same, that is 1,000 florins,
neither party gained or lost. In all these circumstances,
however, no one ever thought of delivering the roots
or of receiving them. [Ed., in other words, one of
the first examples of a futures market.] Henry Munting,
in 1636, sold to a merchant at Alkmaar, a tulip-root
for 7,000 florins, to be delivered in six months;
but as the price during that time had fallen, the
merchant paid, according to agreement, only ten percent.
'So that my father,' says the son, 'received 700 florins
for nothing; but he would much rather have delivered
the root itself for 7,000.'?.The only difference between
the tulip-trade and stock-jobbing is at present?.that
at the end of the contract the price in the latter
is determined by the Stock-exchange; whereas in the
former it was determined by that at which most bargains
were made. High- and low-priced kinds of tulips were
procured, in order that both the rich and the poor
might gamble with them?.Whoever is surprised that
such a traffic should become general, needs only to
reflect upon what is done where lotteries are established,
by which trades are often neglected, and even abandoned,
because a speedier mode of getting fortunes is pointed
out to the lower classes. In short, the tulip-trade
may very well serve to explain stock-jobbing, of which
so much is written in gazettes, and of which so many
talk in company without understanding it?.
"At
length, however, this trade fell all of a sudden.
Among such a number of contracts many were broken;
many had engaged to pay more than they were able;
the whole stock of the adventurers was consumed by
the extravagance of the winners; new adventurers no
more engaged in it; and many, becoming sensible of
the odious traffic in which they had been concerned,
returned to their former occupations. By these means,
as the value of tulips still fell, and never rose,
the sellers wished to deliver the roots 'in natura'
to the purchasers at the prices agreed on; but as
the latter had no desire for tulips at even such a
low rate, they refused to take them or to pay for
them. To end this dispute, the tulip-dealers of Alkmaar
sent in the year 1637 deputies to Amsterdam; and a
resolution was passed on the 24th of February, that
all contracts made prior to the last of November 1636
should be null and void; and that, in those made after
that date, purchasers should be freed on paying ten
percent to the vendor."
What
a mess. But does the above remind you of something?
Like the issues in today's derivatives markets and
counterparty risk? It does to me.
Finally,
Johann Beckmann had this tale of the time.
"When
John Balthasar Schuppe was in Holland, a merchant
gave a herring to a sailor who had brought him some
goods. The sailor, seeing some valuable tulip-roots
lying about, which he considered as of little consequence,
thinking them to be onions, took some of them unperceived,
and ate them with his herring. Through this mistake
the sailor's breakfast cost the merchant a much greater
sum than if he had treated the prince of Orange. No
less laughable is the anecdote of an Englishman who
traveled with Matthews. Being in a Dutchman's garden,
he pulled a couple of tulips, on which he wished to
make some botanical observations, and put them in
his pocket; but he was apprehended as a thief, and
obliged to pay a considerable sum before he could
obtain his liberty."
J'accuse!
Wall
Street History returns next week.
Brian
Trumbore
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