Wall Street History

---

Wall Street History

05/21/1999

Dim Bulbs

For some of these 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 a current mania we are experiencing. It
begins with an "I."

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. And 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 to its lowest dregs (see also-DAY TRADERS)
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 gambling 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
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 which would enforce payment of the
contracts. The question was raised in Amsterdam, but the judges
unanimously refused to interfere, on the ground 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.

Brian Trumbore

---