When economists are faced with the phenomena of financial panic or financial collapse, they immediately think of such a phenomenon as tulip mania. In fact, the concept of "tulip mania" is a metaphor used in the field of economics. Looking into Palgrave's Dictionary of Economic Terms, there is no mention of the speculative mania of the seventeenth century in Holland. Instead, the economist Guillermo Calvo, in his Dictionary Supplement, defines tulip mania as follows: Tulip mania is a phenomenon in which price behavior cannot be fully explained by economic fundamentals.
The purpose of this work is to identify the features of the emergence of the first financial crisis in Europe and its consequences.
Many researchers agree that events occur in a certain cycle and that they can be repeated from time to time. In this regard, we can say that the study of the historical facts of financial crises gives us the opportunity to avoid the mistakes of past generations.
According to Karl Marx, Holland at the beginning of the 17th century could be considered an ideal capitalist country. Almost immediately, foreign and colonial trade became the basis of its economic base. The Dutch industry also received a strong impetus at this time. The key to success is considered to be the political system of the Netherlands, which guaranteed the big bourgeoisie, which seized all the finances and trade in the country, unlimited domination.
The "Tulip" epic rightfully bears the title of the very first speculative race in the world, which ended in failure for the entire country, which was leading at that time in economic terms. The excitement and crazy demand for tulips began in the Netherlands in the early 1620s and did not stop until the 37th year. The peak of prices was recorded in a three-year period: from 1634 to 1637.
One of the foreigners intrigued by tulips was Ogier Ghislain de Busbeck, the Austrian ambassador to Turkey (1555-1562). He brought some bulbs from Constantinople to Vienna, where they were planted in the gardens of Ferdinand I, the Habsburg emperor. There the tulips blossomed under the expert supervision of Charles de Lecluse, a French botanist better known by his Latin name Carl Clusius.
The tulip was a status symbol. He testified to belonging to the upper strata of society. Beautiful flowers of one color or another grew from the bulbs, and after a few years it suddenly changed: stripes appeared on the petals, each time of different shades. It was only in 1928 that it was established that the discoloration of the flower is a disease of a viral nature (mosaic), which, in the end, leads to the degeneration of the variety. But at the end of the 17th century, it seemed like a miracle, the petals received an unusual and brighter color. These flowers were a symbol of luxury and their presence in the Dutch garden testified to the high status of the owners in society.
The reason for the frenzied demand for tulip bulbs can be considered the publication in 1612 in the Dutch catalog Florilegium of almost 100 varieties of this flower. Over time, some European royal courts became interested in this new symbol of prosperity. As a result, a sharp increase in the price of it began. Realizing that you can make good money on tulips, almost all segments of the population began to engage in this business. The fever was explained by the expectation that soon more and more people would become interested in this flower, and the prices for it would increase more than once.
Foreign capital begins to rapidly import into Holland, the value of real estate grows, and the demand for luxury goods increases. People who had not previously thought about trade began to take an active interest in it and even mortgaged their houses, lands, and jewelry to buy as many tulip bulbs as possible in the hope of earning as much money as possible later.
Before this "flower" fever began, tulips were traded from May, when they were dug up, until October, when they had to be planted in the ground. The following spring, the flowers were already delighting their owners. During the boom, the winter trade in seedlings became widespread. Most merchants, despite all the risk, tried to buy tulips in winter: in this case, in the spring they could be sold at two or even three times the price! By the end of 1636, the lion's share of the annual crop turned into "paper", sold under "future" contracts. As a result, speculators began to appear on the markets, trying to buy as many “paper” tulips as possible at the beginning of summer, hoping to resell them next spring at an even higher price.
Prices for tulip bulbs have been on the rise. But on February 2, 1637, the market overheated - prices reached such heights that demand fell sharply. The indebted and impoverished Dutch had a lot of tulip bulbs left - but there was no one to sell them. Of course, those who were lucky enough to be the first to sell the bulbs became rich in no time. Those who were not so lucky lost everything. In that year, the price of bulbs fell 100 times. This collapse in prices also hit the entire Dutch tulip industry. The tulip crisis was the cause of the subsequent financial crisis in Holland, it turned out that the entire economy of the country was focused on tulips. Affected citizens began to blame the provoking tulip crisis on the government, which adopted a series of amendments to the laws on the trade in tulips, limiting stock speculation. It is clear that the Dutch government only "closed the hole" that allowed tulip prices to skyrocket. Not everyone understood that the sooner the bubble of tulip mania burst, the easier the consequences would be.
The main dealers were desperately trying to save the day by organizing mock auctions. Buyers began to break contracts for the flowers of the summer season of 1637, and on February 24 the main tulip growers gathered in Amsterdam for an emergency meeting. The developed scenario for overcoming the crisis was as follows: contracts concluded before November 1636 were proposed to be considered valid, and buyers could terminate subsequent transactions unilaterally by paying a 10% compensation. But the Supreme Court of the Netherlands, which considered manufacturers to be the main culprits in the mass ruin of Dutch citizens, vetoed this decision and offered its own version. Sellers, desperate to get money from their buyers, received the right to sell the goods to a third party for any price, and then claim the lost difference from the one with whom the original agreement was concluded. But no one wanted to buy anymore….. The government understood that one certain category of its citizens could not be blamed for this hysteria. Everyone was to blame. Special commissions were sent around the country to sort out disputes over "tulip" deals. As a result, most of the sellers agreed to receive 5 florins out of every 100 that were due to them under the contracts.
A three-year stagnation in the "non-tulip" areas of the Dutch economy: shipbuilding, agriculture, fishing - cost the country dearly. The scale of the shock that the Netherlands suffered in the 17th century is commensurate with the default of August 1998. Subsequent wars brought the country to a desperate state, hastening the decline of Dutch trading power.
The passion for tulips survived the effects of tulip mania and the tulip bulb industry flourished again. Indeed, by the 18th century, Dutch tulips had become so famous that the Turkish Sultan Ahmed III imported thousands of tulips from Holland. So after a long journey, the Dutch descendant of Turkish tulips returned to their "roots".
Tulip mania is still insufficiently studied and has not been the subject of careful scientific analysis. For the first time, the phenomenon of tulip mania became widely known in 1841 after the publication of the book The Most Common Delusions and Folly of the Crowd, written by the English journalist Charles Mackay, and the novel The Black Tulip by Alexandre Dumas (1850).
In its development, the economy goes through stages of ups and downs, determined by the general laws of its development. Therefore, the development of the economic system is considered as a cyclical process. The Tulip Crisis, in turn, is an important step in this cyclical process. The paper reveals the features of the emergence of the first financial crisis in Europe, and it can be concluded that everything in life returns, and everything that seems new, in fact, has already happened.
You need to know what history and experience around the world says, and use this knowledge for the benefit of the prosperity of the country's financial life.
Literature:
1. McKay C. The most common misconceptions and madness of the crowd / M .: Alpina Business Books, 1998. – 318s
2. Bernstein P. L. Against the gods: The taming of risk / Per. from English. - M.: CJSC "Olimp-Business", 2000. - 400 s
3. Douglas French "The Truth About Tulip Mania" [article], 2007 Available at: http://mises.org/
Perkov G.A.
Kramarenko A.A.
Donetsk National University
Scene: Holland.
Time of action: XVII century.
Corpus delicti: exchange trading in tulip "futures".
Scale: National.
Characters: almost the entire population of the country.
Type: B2B, P2P (business to business, people to people)
Tulip fever in Holland in the 17th century can be considered a scam in the sense that the word was put into the century before last, that is, a lucrative enterprise. But when the thirst for profit covers literally the entire population of the country, when one product becomes a means of profit, and the mechanisms for making transactions are not protected in any way, sooner or later everyone ends up losing.
Many economists believe that the cause of financial crises is the separation of the sphere of circulation (money) from the sphere of production (goods) due to globalization, the growth and complication of world financial flows and the emergence of new banking technologies. For the first time, the threat of such a “separation from the people and fall” arose as early as the beginning of the 17th century “in one single country” - Holland, which at that time was one of the most economically developed.
The financial disaster was the result of the rush demand for tulips and the emergence of "futures" trading. Considering that contract insurance mechanisms were not developed until centuries later, it is not surprising that almost the entire population of the country suffered from this "trade in papers".
Why was the tulip the subject of national speculation, and not, say, emeralds or overseas spices and other colonial goods, to which the country of seafarers had almost exclusive access? Perhaps the fact is that at the beginning of the 17th century, a bouquet of tulips in a Dutchman's living room meant about the same thing as his own yacht or Rolls-Royce today. The tulip was a status symbol. He testified to belonging to the upper strata of society. It is not surprising that when a tulip bulb was affordable for the average Dutchman, a fever swept the country. Everyone wanted to snatch their piece and join the riches of the tulip market. 
But there was another reason why it was the tulip that became the subject of grandiose speculation that ruined one of the most economically developed countries in Europe. Like most other ornamental plants, the tulip came to Europe from the Middle East. It was brought from Turkey in the middle of the 16th century. But the tulip had one interesting feature. Beautiful flowers of a single color grew from the bulbs, but after a few years it suddenly changed: stripes of various shades appeared on the petals. It is now known that this is the result of a viral disease of tulips. But then it seemed like a miracle. The Dutch jeweler, in order to get rich, had to first pay a lot of money for a diamond, then work for a long time to cut it, and then sell the stone at a profit. The owner of a single tulip bulb could instantly become the owner of a new, unique variety that could be sold at the tulip market several times more expensive.
The tulip was good because its striped varieties perfectly matched the needs of the most expensive segment of the market - such flowers were rare and sold at a very high price, while the bulk of cheap yellow, pink and red tulips satisfied the needs of middle-class buyers.
In 1612, the Florilegium catalog with drawings of 100 varieties of tulips was published in Amsterdam. Many European royal courts became interested in the new symbol of prosperity. Tulips jumped in price. In 1623, a bulb of the rare Semper Augustus variety, which was in great demand, cost 1,000 florins, and at the height of the tulip boom in 1634–1636, up to 4,600 florins were paid for it. For comparison: a pig cost 30 florins, a cow - about 100.
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The third reason for the tulip boom was the plague of 1633-1635. Due to the high mortality, there was a shortage of workers and, accordingly, wages increased. The simple Dutch had money, and, looking at the tulip madness of the rich, they began to invest in their own tulip business.
Finally, tulips are seasonal plants. Before the tulip boom, they were traded from May (when the flower bulbs were dug up) to October (when they were planted and the tulip bloomed the next spring). But since demand catastrophically exceeded supply, seedling sales began in the dead winter season for tulip dealers. Of course, there was a risk for the buyer, but the seedlings cost less. Taking a risk and buying future tulips in November or December, in the spring it was possible to sell them for an order of magnitude or even several orders of magnitude more expensive. And from here it is only one step to "futures" transactions, and this step was immediately taken. At the end of 1635, tulips became "paper": a large share of their "harvest" in 1636 was sold under "future" contracts.
Tulips were regularly traded on the Amsterdam Stock Exchange. And in the provinces - in Rotterdam, Haarlem, Leiden, Alkmaar and Horn - improvised tulip exchanges - colleges were created in taverns. They were engaged in, in fact, the same as on the main Amsterdam stock exchange - speculation in "paper" tulips. A special ritual of securities trading was even developed. For example, a potential buyer was forbidden to name his price, he could only hint that he would not mind buying this contract. After that, one of the sellers got up from the table and the two of them retired to the back room of the tavern. If they did not agree, then upon returning to the common room, they paid a small amount to everyone else as compensation for disrupting a possible deal. But the auction did not stop, and the new couple retired to a separate room. And the compensation was immediately spent on drinks for all the respectable brokers, so the trades must have been fun. If the deal was concluded, then upon returning from the office, the seller and the buyer put up a magarych for everyone present and, as usual, splashed beer and vodka on everyone.
In 1636, tulips became the subject of a great stock market game. Speculators have appeared who are not afraid to buy up "paper" flowers during the summer in order to sell them even more expensive next spring before the start of the season. A contemporary described the scenario of such transactions as follows: “A nobleman buys tulips from a chimney sweep for 2,000 florins and immediately sells them to a peasant, while neither a nobleman, nor a chimney sweep, nor a peasant has tulip bulbs and does not seek to have them. This is how more tulips are bought and sold than the land of Holland can grow.
Prices have skyrocketed. Tulip bulbs Admiral de Maan, which cost 15 florins apiece, were sold two years later for 175 florins. The price of the Centen variety jumped from 40 florins to 350 florins, for one Admiral Liefkin bulb they paid 4400 florins. The documented record was a deal of 100,000 florins for 40 tulip bulbs.
To attract poor people, sellers began to take small advances in cash, and the property of the buyer went as collateral. For example, the cost of a bulb of a Viceroy tulip was "2 loads (2.25 cubic meters) of wheat, 4 loads of rye, 4 fat cows, 8 fat pigs, 12 fat sheep, 2 furs of wine, 4 barrels of beer, 2 barrels of butter, 1000 pounds of cheese, a bed, a wardrobe with clothes and a silver goblet ”- all goodness for 2500 florins. The artist Jan van Goyen paid the burgomaster of The Hague an advance of 1,900 florins for ten bulbs, offered a painting by Solomon van Ruysdael as a pledge of the rest of the amount, and also undertook to paint his own.
Tulip fever has given rise to legends. One of them is about how a port tramp, seeing a ship entering the harbor, rushed to the office of its owner. The merchant, delighted with the news of the return of the long-awaited ship, chose the fattest herring from the barrel and rewarded the beggar with it. And he, seeing on the desk an onion that looked like peeled onions, decided that herring was good, but herring with onions was even better, put the onion in his pocket and departed in an unknown direction. A few minutes later, the merchant missed the tulip bulb Semper Augustus ("Eternal August"), for which he paid 3,000 florins. When the tramp was found, he was already finishing his herring with "onions". The poor guy went to jail for embezzlement of private property on an especially large scale.
And here is another legend. Haarlem tulip merchants heard about a Hague shoemaker who allegedly managed to breed a black tulip. A deputation from Haarlem visited the shoemaker and bought all the bulbs from him for 1,500 florins. After that, right before the eyes of an amateur tulip grower, the Harlem people rushed to furiously trample the bulbs and calmed down, only turning them into porridge. They were afraid that an unprecedented black tulip would undermine their well-established business. The shoemaker could not bear the abuse of flowers, fell ill and died.
The first bell rang at the end of 1636, when tulip growers and city magistrates finally noticed that the trade was mainly in "paper" tulips. With a sharp increase in the number of players on the tulip exchange, prices began to jump in both directions faster than real demand went down or up. Only experts could understand the intricacies of the market. They advised at the beginning of 1637 to reduce purchases. On February 2, the purchases actually stopped, everyone was selling. Prices began to fall catastrophically. Both the poor and the rich were ruined.
The main dealers made a desperate attempt to salvage the situation by organizing mock auctions. Buyers began to break contracts for the flowers of the summer season of 1637, and on February 24 the main tulip growers gathered in Amsterdam for an emergency meeting. They developed the following scenario for overcoming the crisis. Contracts concluded before November 1636 were proposed to be considered valid, and buyers could terminate subsequent transactions unilaterally by paying a 10% compensation. However, the Supreme Court of the Netherlands, which considered tulip growers to be the main culprits for the mass ruin of Dutch citizens, vetoed this decision and offered its own version. Sellers who were desperate to get money from buyers were given the right to sell the goods to a third party at any price, and then demand the difference from the one with whom the original agreement was concluded. But no one else wanted to buy.
The government realized that no specific category of citizens could be blamed for the tulip madness. Everyone was to blame. Special commissions worked throughout the country to resolve disputes over tulip deals. As a result, most of the sellers agreed to receive 5 florins out of every 100 that were due to them under the contracts.
The three-year stagnation in other, "non-tulip" areas of the Dutch economy cost the country dearly. Some later even considered that it was during the period of tulip madness that the main competitor - England - managed to intercept many of the original Dutch markets abroad. Like it or not, the shock that Holland experienced in the 17th century is quite comparable to the default of 1998. However, the end of this story is still good: the mechanisms of futures trading work properly all over the world, and Holland is still considered the country of tulips, and the scale of the Dutch flower business can only be envied.
Source book “The world's biggest scams. The Art of Deception and Deception as Art"
Many mistakenly believe that tulips first appeared in Holland. Actually, it is not. The homeland of these flowers is the western part of the Mediterranean and part of Central Asia (Pakistan, Afghanistan and Turkey). Some types of tulips grew wild in North Africa, Southern Europe and Japan.
This flower came to Europe in 1554. In Augsburg (Germany), the ambassador to the Turkish court, Busbeck, sent bulbs. He saw a beautiful flower during one of his trips around the country.
There is an interesting theory regarding the origin of the name of the flower. In 1562, the first large shipment of Turkish tulips reached Antwerp, which at the time was part of Dutch territory. Soon the supply of bulbs was put on stream. Gardeners from Europe saw similarities between the shape of the flower and the Turkish headdress. They started calling the flower "Tulipan", from "tuilbend", the Turkish word for turban. So the name of this beautiful flower appeared.
Gradually, the gardens of the nobility began to be increasingly decorated with tulips. Flowers became fashionable and tulip mania began all over Europe. The famous scientist Clusius made a lot of efforts to ensure that the flowers spread throughout Europe. He sent bulbs to numerous friends from his native Vienna in England and the Netherlands. The scientist began to collect all varieties of tulips known at that time. This hobby quickly gained popularity. Wealthy collectors ordered rare varieties of flowers from Turkey and bred them in Europe.
Around that period, the custom of assigning to new varieties the names of crowned and noble persons, and the names of cities, comes into fashion. This was due to the fact that among the admirers of tulips were Cardinal Richelieu, Voltaire, the Austrian Emperor Franz II and especially the French King Louis XVIII. In Versailles, they even organized holidays dedicated to tulips.
And yet, Holland surpassed France in its fascination with tulips. In the country, the passion for these flowers reached its climax when the bulbs began to be traded on the stock exchange ...
Tulips literally drove the Dutch crazy. A small but very rich country is obsessed with tulip bulbs. Wealthy merchants did not want to give in to the nobles and decorated the flower beds in their gardens with royal scope. Tulips served as the main decoration.
Breeders constantly brought out new varieties of tulips. An interesting feature of this flower is its ability to mutate quickly. The flower may change greatly over two or three generations, so that the relationship between specimens and their parents may be barely recognizable.
At first, the demand for flowers increased, but prices nevertheless remained within reasonable limits. The turning point was 1630, when the cultivation of tulips reached enormous proportions. The bulb trade has grown into a stable and profitable business. It turned out that the climate and soil in Holland are ideal for growing tulips. Seasoned merchants began to buy even those bulbs that were grown in the gardens of the monasteries of Belgium, which bordered on Holland. The cities of Amsterdam, Utrecht, Alkmaar, Leiden, Vianen, Enkhuizen, Haarlem, Rotterdam, Gorn and Medenblick became the centers of "tulip mania".
If just a few years ago, flower growers sold bulbs at an affordable price, then from 1634 prices began to artificially inflate. Bulbs begin to sell with the help of pharmaceutical scales. At this time, there is already an exchange and shares. So the methods of stock speculation quickly began to be applied to the sale of bulbs. The rate of tulips was so high that an entire industry worked for flowers.
There were special rooms in which auctions were held. Lawyers specializing in the execution of transactions for the purchase / sale of tulips appeared. For one tulip bulb, you can bargain for 2,500 guilders. For this money, one could buy two carts of wheat, four carts of hay, four bulls, the same number of pigs, twelve sheep, four barrels of beer, two barrels of butter, 500 kilograms of cheese, a bed, a suit and a silver goblet. In one of the Dutch cities, the total turnover of the tulip trade reached 10 million guilders. All the movables and real estate of the East India Company, the most powerful colonial monopoly of that time, were valued at the same amount on the stock exchange.
Foreword
With this material, we open a series of articles on the history of the global financial and economic crises. The time in which we live shows us how fragile and imperfect the modern world financial and economic architecture is. The shortsightedness of politicians, misleading ratings reports, the greed of top managers of the largest financial structures, the pursuit of excess profits by investment banks with inadequate increase in risks, and, finally, the monetary policy fueling all of the above led to the events that we began to observe in 2008. There is an opinion that history repeats itself. This is what the main postulates of the technical analysis of financial markets tell us. Unfortunately, we are forced to state that a person is a creature that is not able to learn from the mistakes of past generations. From all this we can conclude that the crisis phenomena of a global scale, as well as the events preceding them, are a cyclical process. In this series of articles, we will try to identify the common features of such events, analyze the phenomena that preceded them, and come to the construction of a universal model.
In preparing the materials, various public online sources were used, in particular Wikipedia. Part of the material was selected independently from historical articles of past years. Great help in creating articles was brought by the works of the great Russian scientist-economist, professor, chief researcher of the Institute of World Economy and International Relations of the Russian Academy of Sciences Andrei Vladimirovich Anikin.
Let's start with the "Tulip" crisis that broke out in Holland in the 17th century. This is one of the first, adequately described and documented, economic crises in the history of mankind. Of course, it is worth mentioning that it cannot be called a global crisis, because. it took place in a single country and all its devastating consequences were felt, first of all, by the inhabitants of the Netherlands. At that time there was no such freedom in the movement of capital, and its movement in significant volumes was extremely risky and expensive.
Article #1
“There is nothing new under the sun.
There is something that they say: look, this is new;
but that was already in the ages that were before us. »
Eccl. 1, 9-10
Crisis in Holland in 1634 - 1637.
The economic crisis (ancient Greek Krisis - a turning point) is an imbalance between supply and demand for goods and services.
The long struggle for independence ended in victory for the northern Netherlands. Formed in 1581 by the northern provinces with Holland at the head, the bourgeois republic was actually recognized by Spain as early as 1609, a truce concluded between the warring parties (for 12 years). The victory of the bourgeois revolution put Holland in economic terms in first place among the countries of Western Europe. “Holland,” in the words of Karl Marx, “was an exemplary capitalist country of the 17th century.” Its main economic base was the vast colonial and foreign trade, provided with an exceptionally powerful fleet and which made the main city of Holland, Amsterdam, the largest trading center in Europe. The Dutch industry also reached significant development in the 17th century. The political system of Holland in the 17th century guaranteed the unlimited dominance of the big bourgeoisie, relatively few in number, but seizing all the trade and finances of the country in their hands.
revival
The "Tulip" epic can be considered the first well-described speculative race that ended in collapse for a country that at that time was one of the most economically developed. The hype around tulips in the Netherlands lasted from about 1620 to 1637, the peak of prices was reached in 1634-1637. Why the tulip has become the subject of national speculation is almost impossible for a modern person to understand. Let's try to trace what led the whole country to collapse, and learn the lesson that history has taught us. In 1554, the envoy of the Austrian emperor saw flowers in the garden of the Turkish Sultan, which attracted his attention with grace and beauty. The ambassador bought a batch of bulbs and brought them to Vienna. The flowers ended up in the Vienna Garden of Medicinal Plants, the director of which was the Dutch botanist, gardener Clusius. The merit of Clusius should be considered that in 1570 he brought a tulip bulb to the Dutch city of Leiden. Among connoisseurs and lovers of tulips were Marshal Biron, Richelieu, Voltaire, French King Louis XVIII. The tulip was a status symbol. He testified to belonging to the upper strata of society. Beautiful flowers of one color or another grew from the bulbs, and after a few years it suddenly changed: stripes appeared on the petals, each time of different shades. Only in 1928 it was established that the color change of the flower is of a viral nature (mosaic), which, in the end, leads to the degeneration of the variety. But at the end of the 17th century, it seemed like a miracle, the petals received an unusual and brighter color.
Steady growth
Prosperity
The first reason for the boom was the publication in 1612 in Amsterdam of the Florilegium catalog with drawings of 100 varieties of tulips. Many European royal courts became interested in the new symbol of prosperity. Tulips jumped sharply in price…. Seeing that it was possible to earn money on this, more and more sections of the population were drawn into this. Everyone expected that soon other countries would also start buying bulbs, and prices would rise even more…. Foreign capital poured into Holland from abroad, raising the price of real estate and luxury goods. The second reason for the boom was ... the cholera epidemic of 1633-1635. Due to the high mortality in the country, there were not enough workers - accordingly, wages increased. People who previously did not think at all about trading and growing tulips began to actively mortgage their houses, lands, jewelry, working livestock, etc., and also take out money on credit in order to buy more tulip bulbs and get the maximum profit.
Excitation
To attract poor people, sellers began to take small advances in cash, with the buyer's property as collateral for the rest of the amount. For example, the cost of a 'Viceroy' tulip bulb was "2 loads (2.25 cubic meters) , 4 loads of rye, 4 fat cows, 8 fat pigs, 12 fat sheep, 2 skins of wine, 4 barrels of beer, 2 barrels of butter, 1000 pounds of cheese , a bed, a wardrobe with clothes and a silver goblet - all good for 2500 florins.
In the Museum of Amsterdam, on one of the slabs, an inscription has been preserved, stating that two stone houses demolished in 1878 were bought in 1634 for 3 tulip bulbs.
A girl whose dowry consisted of a tulip bulb was considered a very profitable bride.
There is a known case when for one bulb of the Tulip Brasserie variety they gave the most famous and profitable brewery.
If the currency of that time is translated into the modern dollar, it turns out that the sellers of tulip bulbs earned about $44,000 a month.
Careless handling of precious bulbs had serious consequences. The young man, talking, began to mechanically remove one peel after another from the onion and removed it completely. He was horrified when he realized that the bulb was the then-famous Van Eyck variety. Despite all his pleas and assurances that he did it quite by accident, the owner attracted the young man to, who sentenced him to a fine of 4,000 guilders, and until the full payment of the fine, he had to sit in prison.
Overstocking
Tulips are seasonal plants. Before the "tulip" boom, they were traded from May (when the flower bulbs were dug) to October (when they were planted), and the tulip bloomed the following spring. Now, in the "dead" winter season, they began to sell seedlings. Taking a risk and buying future tulips in November or December, in the spring it was possible to sell them 2-3 times more expensive. At the end of 1636, most of the year's harvest became "paper", sold under "future" contracts. There were speculators who risked buying "paper" flowers during the summer in order to sell them even more expensive next spring before the start of the season.
Breakdown
At the end of 1636, tulip producers and city magistrates were the first to see the "problem", noting that the trade was mainly in "paper" tulips. They advised at the beginning of 1637 to reduce purchases. purchases actually stopped, everyone was selling. Prices fell catastrophically. Both the poor and the rich were ruined…. Those who were at the beginning of this process received ultra-high incomes. Those who joined later and did not manage to sell in time lost almost everything.
recession
The main dealers were desperately trying to save the day by organizing mock auctions. Buyers began to break contracts for the flowers of the summer season of 1637, and the main growers of tulips gathered in Amsterdam for an emergency meeting. The developed scenario for overcoming the crisis was as follows: contracts concluded before November 1636 were proposed to be considered valid, and buyers could terminate subsequent transactions unilaterally by paying a 10% compensation. But the Supreme of the Netherlands, who considered the manufacturers to be the main culprits in the mass ruin of Dutch citizens, vetoed this decision and proposed his own version. Sellers, desperate to get money from their buyers, received the right to sell the goods to a third party for any price, and then claim the lost difference from the one with whom the original agreement was concluded. But no one wanted to buy anymore….. The government understood that one certain category of its citizens could not be blamed for this hysteria. Everyone was to blame. Special commissions were sent around the country to sort out disputes over "tulip" deals. As a result, most of the sellers agreed to receive 5 florins out of every 100 that were due to them under the contracts.
Stagnation
A three-year stagnation in the "non-tulip" areas of the Dutch economy: shipbuilding, agriculture, fishing - cost the country dearly. The scale of the shock that the Netherlands suffered in the 17th century is commensurate with the default of August 1998. Subsequent wars brought the country to a desperate state, hastening the decline of Dutch trading power.
Peace again
New algorithm (according to MF)- this
* the return by the market (of course, with an overlap in the opposite direction) of the cost of goods and services to their real market price, at which a balance occurs that can give impetus to a new round of development of the world economy at a new level of development and new relationships between its participants
In 1636, the cost of one tulip equaled the cost of a small house.
In a year, the price of a bulb fell a thousand times. Just two years later nobody needed tulips
* this "new market price" is given by the market
in 1645 the price of a tulip bulb was only 1% of what it had been a decade before.
* the stronger the correction, the more thoroughly the relationships are revised and the stronger the impulse of the OLD TF will be
* correction (crisis) is a forcible withdrawal of capital accumulated by the majority (over 90%) of the population during that period of the bullish trend, the correction for which is this crisis
The bubble takes longer to inflate than it does to burst.
Output
History teaches us a lesson in optimism.
Despite all the negative consequences for the "non-tulip" industries, the positive can be identified in the fact that the crisis contributed to the financial buildup of the country, the emergence of stock exchanges and futures trading. This period is considered to be the "golden age" of the Netherlands. The United West India Company was also established to deal with shipping and trade with the states of the Southeast. The activities of this company led not only to an unprecedented influx of goods from East and West India, but also to the interpenetration of two different cultures. "Tulip fever" has become a kind of "vaccination" for the Dutch business - for two centuries, the Dutch rarely got involved in super-profitable, but also super-risk business projects.
Once the Dutch had one national symbol - a windmill. Tulips were added to the mills in the 17th century. Tulip cultivation is the main branch of Dutch business today. One fifth of the area of the Netherlands is used for growing bulbs. Every year, about two billion bulbs are sent to 80 countries around the world.
The largest flower exchange is located in Aalsmeer. The auction is interesting not only because, instead of the usual stocks and bonds, business people are trading with might and main on the price of flowers, but also because the auctions are not going according to our usual, but according to the opposite scenario. Initially, the highest price for flower bulbs is set and gradually reduced until a buyer is found. If there are no applicants at all, it means that this variety could not stand the competition and is rejected. serves 1,000 people, selling a million tulips and three million roses per hour.
The annual flower parade, organized for over 50 years, impresses with its scale and beauty. The total route of the flower procession, demonstrating the latest trends in Dutch floriculture and floristry, was as much as 80 kilometers! A whole sea of flowers, music, costumed performances - and all this is absolutely free.
Afterword
As we can see, even in one of the first financial crises known to mankind, all signs of a ballooning bubble are clearly visible. The completely far-fetched value of a fairly easily reproducible investment object, in the form of a tulip bulb, gave rise to nationwide hysteria. The withdrawal of funds from real production, objects of accumulation, products of subsistence farming (which at that time were a freely convertible means of payment) sharply increased both the liquidity and the price of tulip bulbs. For the ordinary population, it became obvious that it was simply unprofitable to engage in real production and subsistence farming compared to the profits received from operations with "new gold". A major economic upheaval began throughout the country. The introduced futures mechanism became the catalyst for the process. Hence such a sharp and rapid fall.
The question involuntarily arises: “Does it all remind you of something?” Recall the fall of dot-coms in 2000, which we will come to in due time. The parallels are obvious - why save up for old age, keep money at 5% per annum on deposits, invest in your own business with a delayed payback period, if you can “make” 50-100% per annum on the shares of high-tech companies without any special problems. Therefore, we will look for parallels of past events with the crises of our time.
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Introduction and afterword - Michael (dma)
Article preparation - Olga (Zarja)
Chair and Investment
In the winter of 1637, "tulip fever" was atrocious in Holland. The demand for tulip bulbs and their cost was enormous. It was the first example of a planned crisis in history.
Tulips - a miracle of botanical gardens
In 1554, the envoy of the Austrian emperor in Constantinople, Ogir Gizelin de Busbeck, noticed beautiful flowers in the garden of the Turkish sultan, which struck him with their grace. In the same year, the envoy purchases a batch of bulbs with his own money and brings them to Vienna, where they are planted in the garden of Ferdinand I. The garden is managed by the botanist Charles de Lecluse, known as Karl Clusius. He managed to create the necessary climate in the garden of the Habsburgs, the flowers bloomed and they managed to propagate. News of this success reached the leadership of the university in the Dutch city of Leiden, where Clusius was appointed head of the university's Botanical Garden. There, Clusius crosses different varieties of flowers to get varieties that suit the colder Dutch climate. Already in 1594, the first frost-resistant flower bloomed. Thus began what would later be called "tulip fever".
Flower symbol
Beautiful and rare, the tulip is fast becoming the new symbol of wealth, prosperity and belonging to a chosen society. Owning it is coveted and prestigious. His bulbs become a precious and highly desired gift. They are outrageously expensive. Sometimes, in order to buy them, you have to part with ... a stone house.
Florilegium and the reason for the demand
In 1612 the catalog Florilegium publishes 100 varieties of the new flower. Why so many varieties? It's all about ... the virus (but this will become known only in the twentieth century). In the meantime, the bulbs are growing, and, blooming, the flowers give an infinite number of variations - either stripes of different shades, then white spots, then some other streaks, then curly edges of the petals. Royal European courts are beginning to be interested in the new flower. Prices are rising, fueled by rumors that soon more and more people will become interested in the flower, and prices for it will increase more than once.
Ideal capitalist country
After a protracted war of independence with Spain, a bourgeois republic was founded on the territory of the seven northern Dutch provinces, after the conclusion of a truce, which in a fairly short time began to take a leading position in shipbuilding and colonial trade - the leading economic areas of the 19th century. Amsterdam becomes a thriving industrial center. The main reason for this growth lay in the political system of the Netherlands, which guaranteed the bourgeoisie almost unlimited dominance in all areas of the economy.
Viceroy and Semper Augustus - half a kingdom for a flower
So how much did the bulbs cost? In 1623, a Viceroy bulb cost 1,000 guilders. Is it a lot or a little? The average annual income of the then Dutchman was 150 guilders, and in order to buy just one bulb, he had to save 7 or even 8 years. A ton of oil cost one hundred guilders, and three hundred pigs cost 300. But the Semper augustus variety broke the record. A record of a deal is known, which says that for one bulb of this variety they give 6 thousand guilders! By the way, the most profitable bride was considered to be the one who had the Semper augustus bulb in her dowry.
Some of the deals are still amazing. In 1635 there were 40 tulip bulbs. sold for a fantastic amount at that time - 100,000 guilders. It was also not uncommon for one bulb to be sold for several acres of fertile land, for a stone house, or for a few centners of wheat. In addition, when selling, only part could be paid in guilders, everything else could be given in cows, wheat, butter, cheese or good wine.
Winter tulips, stock exchanges and "wind trading"
Tulips are seasonal. Before the "flower fever" began, they were traded from May to October. During the boom period, however, the winter seedling trade became popular. Most merchants tried to buy winter plants, because in the spring they could be sold at two, three, or even four times the price.
Demand grew, more and more Dutch people immersed themselves in the new business. The trade in gold began to bring less income than the trade in flower bulbs. Flower markets open in Amsterdam, Leiden, Harlem. Not only live, but not yet grown "future" bulbs were traded there. In this way, deals were made for the future - people agreed to buy a specified number of bulbs at a specified time in the future. Such transactions were called “wind trade” (from the English wind handel). So people began to sell their time, which is a sin for Christian culture.
collapse
By 1634, half of all transactions in the market were "paper", that is, for the future. Prices rose, the bubble of demand inflated more and more, but in February 1637 there was an “overheating” of the market. There were a huge number of bulbs, but there was no one else to sell them to. The price of bulbs instantly fell a hundred times, and then a thousand. The collapse of the market hit the entire Dutch industry, since both it and the entire economy of that time were focused on tulips. A full-blown financial crisis has begun. The process was catalyzed by the futures mechanism - the very "wind trading" - which provoked at first a sharp and growing growth, and then the same rapid fall.
National hysteria, a bloated demand bubble and unjustified investment value led to the collapse. However, it was the memory of the "tulip hysteria" that helped the Dutch in subsequent years to refrain from risky ventures and catch up over the next 200 years.