Long before anyone ever heard of Qualcomm, CMGI, Cisco Systems, or the other
high-tech stocks that have soared during the current bull market, there was
Semper Augustus. Both more prosaic and more sublime than any stock or bond, it
was a tulip of extraordinary beauty, its midnight-blue petals topped by a band
of pure white and accented with crimson flares. To denizens of 17th century
Holland, little was as desirable.
Around 1624, the Amsterdam man who owned the only dozen specimens was offered
3,000 guilders for one bulb. While there's no accurate way to render that in
today's greenbacks, the sum was roughly equal to the annual income of a wealthy
merchant. (A few years later, Rembrandt received about half that amount for
painting The Night Watch.) Yet the bulb's owner, whose name is now lost
to history, nixed the offer.
Who was crazier, the tulip lover who refused to sell for a small fortune or the
one who was willing to splurge? That's a question that springs to mind after
reading Tulipomania: The Story of the World's Most Coveted Flower and the
Extraordinary Passions It Aroused by British journalist Mike Dash. In
recent years, as investors have intentionally forgotten everything they learned
in Investing 101 in order to load up on unproved, unprofitable dot-com issues,
tulip mania has been invoked frequently. In this concise, artfully written
account, Dash tells the real history behind the buzzword and in doing so,
offers a cautionary tale for our times.
The Dutch were not the first to go gaga over the tulip. Long before the first
tulip bloomed in Europe--in Bavaria, it turns out, in 1559--the flower had
enchanted the Persians and bewitched the rulers of the Ottoman Empire. It was
in Holland, however, that the passion for tulips found its most fertile ground,
for reasons that had little to do with horticulture.
Holland in the early 17th century was embarking on its Golden Age. Resources
that had just a few years earlier gone toward fighting for independence from
Spain now flowed into commerce. Amsterdam merchants were at the center of the
lucrative East Indies trade, where a single voyage could yield profits of 400%.
They displayed their success by erecting grand estates surrounded by flower
gardens. The Dutch population seemed torn by two contradictory impulses: a
horror of living beyond one's means and the love of a long shot.
Enter the tulip. ''It is impossible to comprehend the tulip mania without
understanding just how different tulips were from every other flower known to
horticulturists in the 17th century,'' says Dash. ''The colors they exhibited
were more intense and more concentrated than those of ordinary plants.''
Despite the outlandish prices commanded by rare bulbs, ordinary tulips were
sold by the pound. Around 1630, however, a new type of tulip fancier appeared,
lured by tales of fat profits. These ''florists,'' or professional tulip
traders, sought out flower lovers and speculators alike. But if the supply of
tulip buyers grew quickly, the supply of bulbs did not. The tulip was a
conspirator in the supply squeeze: It takes seven years to grow one from seed.
And while bulbs can produce two or three clones, or ''offsets,'' annually, the
mother bulb only lasts a few years.
Bulb prices rose steadily throughout the 1630s, as ever more speculators wedged
into the market. Weavers and farmers mortgaged whatever they could to raise
cash to begin trading. In 1633, a farmhouse in Hoorn changed hands for three
rare bulbs. By 1636 any tulip--even bulbs recently considered garbage--could be
sold off, often for hundreds of guilders. A futures market for bulbs existed,
and tulip traders could be found conducting their business in hundreds of Dutch
taverns. Tulip mania reached its peak during the winter of 1636-37, when some
bulbs were changing hands ten times in a day. The zenith came early that
winter, at an auction to benefit seven orphans whose only asset was 70 fine
tulips left by their father. One, a rare Violetten Admirael van Enkhuizen bulb
that was about to split in two, sold for 5,200 guilders, the all-time record.
All told, the flowers brought in nearly 53,000 guilders.
Soon after, the tulip market crashed utterly, spectacularly. It began in
Haarlem, at a routine bulb auction when, for the first time, the greater fool
refused to show up and pay. Within days, the panic had spread across the
country. Despite the efforts of traders to prop up demand, the market for
tulips evaporated. Flowers that had commanded 5,000 guilders a few weeks before
now fetched one-hundredth that amount.
Tulipomania is not without flaws. Dash dwells too long on the tulip's
migration from Asia to Holland. But he does a service with this illuminating,
accessible account of incredible financial folly.
Tulip mania differed in one crucial aspect from the dot-com craze that grips
our attention today: Even at its height, the Amsterdam Stock Exchange,
well-established in 1630, wouldn't touch tulips. ''The speculation in tulip
bulbs always existed at the margins of Dutch economic life,'' Dash writes.
After the market crashed, a compromise was brokered that let most traders
settle their debts for a fraction of their liability. The overall fallout on
the Dutch economy was negligible. Will we say the same when Wall Street's
current obsession finally runs its course?
MARK FRANKEL is executive editor of dads magazine.
Copyright 2005, by The McGraw-Hill Companies Inc. All rights reserved.
