The Real Story Behind the 17th-Century ‘Tulip Mania’ Financial Crash - HISTORY

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In 1636, according to an 1841 account by Scottish author Charles MacKay, the entirety of Dutch society went crazy over exotic tulips. As Mackay wrote in his wildly popular, Memoirs of Extraordinary Popular Delusions and the Madness of Crowds, as prices rose, people got swept up in a speculative fever, spending a year’s salary on rare bulbs in hopes of reselling them for a profit.

Mackay dubbed the phenomenon “The Tulipomania.”

“A golden bait hung temptingly out before the people, and one after the other, they rushed to the tulip-marts, like flies around a honey-pot,” wrote Mackay. “Nobles, citizens, farmers, mechanics, sea-men, footmen, maid-servants, even chimney-sweeps and old clothes-women, dabbled in tulips.”

When the tulip bubble suddenly burst in 1637, Mackay claimed that it wreaked havoc on the Dutch economy.

Tulip price index from 1636-1637. The values of this index were compiled by Earl A. Thompson in Thompson, Earl (2007), "The Tulipmania: Fact or artifact?", Public Choice 130, 99–114 (2007).

Tulip price index from 1636-1637. The values of this index were compiled by Earl A. Thompson in Thompson, Earl (2007), "The Tulipmania: Fact or artifact?", Public Choice 130, 99–114 (2007).

“Many who, for a brief season, had emerged from the humbler walks of life, were cast back into their original obscurity,” wrote Mackay. “Substantial merchants were reduced almost to beggary, and many a representative of a noble line saw the fortunes of his house ruined beyond redemption.”

But according to historian Anne Goldgar, Mackay’s tales of huge fortunes lost and distraught people drowning themselves in canals are more fiction than fact. Goldgar, a professor of early modern history at King’s College London and author of Tulipmania: Money, Honor and Knowledge in the Dutch Golden Age, understands why Mackay’s myth-making has endured.

“It’s a great story and the reason why it’s a great story is that it makes people look stupid,” says Goldgar, who laments that even a serious economist like John Kenneth Galbraith parroted Mackay’s account in A Short History of Financial Euphoria. “But the idea that tulip mania caused a big depression is completely untrue. As far as I can see, it caused no real effect on the economy whatsoever.”

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The problem, says Goldgar, is the source material that Mackay used. In 17th-century Holland, there was a rich tradition of satirical poetry and song that poked fun at what Dutch society deemed to be moral failures. Out of that tradition came entertaining pamphlets and poems that targeted the alleged folly of the tulip buyers, whose crime was thinking that trading in tulips would be their ticket into Dutch high society.

“My problem with Mackay and later writers who have relied on him—which is virtually everybody—is that he is taking a bunch of materials that are commentary and treating them as if they’re factual,” says Goldgar.

To get the real scoop on tulip mania, Goldgar went to the source. She spent years scouring the archives of Dutch cities like Amsterdam, Alkmaar, Enkhuizen and especially Haarlem, the center of the tulip trade. She painstakingly collected 17th-century manuscript data from public notaries, small claims courts, wills and more. And what Goldgar found wasn’t an irrational and widespread tulip craze, but a relatively small and short-lived market for an exotic luxury.

In the mid-1600s, the Dutch enjoyed a period of unmatched wealth and prosperity. Newly independent from Spain, Dutch merchants grew rich on trade through the Dutch East India Company. With money to spend, art and exotica became fashionable collectors items. That’s how the Dutch became fascinated with rare “broken” tulips, bulbs that produced striped and speckled flowers.

First these prized tulips were bought as showy display pieces, but it didn’t take long for tulip trading to become a market of its own.

“I found six examples of companies that were set up to sell tulips,” says Goldgar, “so people were quickly jumping on the bandwagon to take advantage of something which was a desired commodity.”

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Tulip prices spiked from December 1636 to February 1637 with some of the most prized bulbs, like the coveted Switzer, experiencing a 12-fold price jump. The most expensive tulip receipts that Goldgar found were for 5,000 guilders, the going rate for a nice house in 1637. But those exorbitant prices were outliers. She only found 37 people who paid more than 300 guilders for a tulip bulb, the equivalent of what a skilled craftsman earned in a year.

But even if a form of tulip mania did strike Holland in 1636, did it reach every rung of society, from landed gentry to chimney-sweeps? Goldgar says no. Most of the buyers were the sort you would expect to be speculating in luxury goods—people who could afford it. They were successful merchants and artisans, not chambermaids and peasants.

A Satire of Tulip Mania

A Satire of Tulip Mania, painted by Jan Brueghel the Younger circa 1640.

“I only identified about 350 people who were involved in the trade, although I’m sure that number is on the low side because I didn't look at every town,” says Goldgar. “Those people were very often connected with each other in various ways, through a profession, family or religion.”

What really surprised Goldgar, given Mackay’s tales of financial ruin, was that she wasn’t able to find a single case of an individual who went bankrupt after the tulip market crashed. Even the Dutch painter Jan van Goyen, who allegedly lost everything in the tulip crash, appears to have been done in by land speculation. The real economic fallout, in Goldgar’s assessment, was far more contained and manageable.

“The people who stood to lose the most money in the tulip market were wealthy enough that losing 1,000 guilders wasn’t going to cause them great problems,” says Goldgar. “It’s distressing and annoying, but it didn’t have any real effect on production.”

While tulip mania and the ensuing crash didn’t flatline the Dutch economy as Mackay asserted, there was still some collateral damage. From court records, Goldgar found evidence of reputations lost and relationships broken when buyers who promised to pay 100 or 1,000 guilders for a tulip refused to pay up. Goldgar says that those defaults caused a certain level of “cultural shock” in an economy based on trade and elaborate credit relationships.

Even if the tulip craze came to an abrupt and ignominious end, Goldgar disagrees with Galbraith and others who dismiss the entire episode as a case of irrational exuberance.

“Tulips were something that was fashionable, and people pay for fashion,” says Goldgar. “The apparent ridiculousness of it was played up at the time to make fun of the people who didn’t succeed.”

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