Tae Kim

Tae Kim

Tulip-Bulb Craze | What 17th Century Get-Rich Madness Can Teach Us Today

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When I read all the sensational articles about cryptocurrency, bitcoins and NFTs, I’m reminded of an old story.

In this post, I want to discuss a little bit of history. Specifically what is known today as the “Tulip-Bulb Craze.”

It really was one of the most spectacular boom and bust in history and I think we can learn quite a bit from it, given history tends to repeat itself.

The Beginning

The story starts in 1593, when a newly appointed botany professor from Vienna, brought to the Netherlands a collection of unusual plants, originally from Turkey. Given that it looked like no other flower native to the country, the professor was hoping to sell it for a nice profit. However many considered it too expensive.

Ironically, it eventually got stolen and was sold in the open market for a handsome profit to the thief.

Over the next decade, the tulip became a popular exotic item in Dutch gardens. It symbolized wealth for the affluent. According to the Library of Economics and Liberty,

“It was deemed a proof of bad taste in any man of fortune to be without a collection of [tulips].” – Library of Economics and Liberty

These tulips however would succumb to a nonfatal virus known as mosaic virus strain and it was this that helped to trigger the wild speculation in tulip bulbs.

Tulips with this virus, would grow with a striped, multicolored pattern rather than a single solid color. The Dutch highly valued these infected bulbs because they were considered rare and exotic. More bizarre the bulb, the higher its value.


The stage was set for Tulipmania and it swept across all of the Netherlands.

Tulip-bulb prices began to rise wildly and it looked like there was no end in sight.

The Library of Economics and Liberty writes:

“The rage among the Dutch to possess [tulip bulbs] was so great that the ordinary industry of the country was neglected, and the population, even to its lowest dregs, embarked in the tulip trade.” – Library of Economics and Liberty

Just to give you a scale of how much these guys were selling, it is recorded that a single bulb could be worth as much as 4,000 or even 5,500 florins. This equates to approximately $50,000 – $150,000 range in today’s money, with best tulips selling for upwards of $750,000.

By 1636, the demand for the tulip trade was so large that regular markets for their sale were established on the Amsterdam Stock Exchange and other towns in the Netherlands.

And the more expensive the bulbs became, the more people viewed them as smart investments.

Charlas Mackay, who chronicled these events in his book Extraordinary Popular Delusions and the Madness of Crowds, writes that the ordinary economy was essentially ignored in favor of speculation in tulip bulbs.

“Nobles, citizens, farmers, mechanics, seamen, footmen, maid-servants, even chimney sweeps and old clotheswomen dabbled in tulips.” – Charlas Mackay

Fear Of Missing Out

Sitting on the sidelines became almost impossible.

Many who said the prices could not possibly go higher, watched in disbelief as their friends and neighbors got rich in what seemed like overnight.

In the last few years of the spree, the craze got to a level in which people started to barter their personal belongings, such as land, home and furniture just to obtain some bulbs.

Call Option

And the ingenious financial instrument called “call options” just added to the fuel to the fire.

The financial market, whether we like it or not, is quite spectacular when you think about it.

When there is a demand for people to buy something, the market always provides a way. And this instrument called “call option” allowed speculators to get more action for their money than it was possible before.

These call options are very similar to what we have in the market today.

Essentially, a call option allows the holder to buy a certain asset, in this case a tulip bulb, at a fixed price during a specified period.

The holder of the “call option” would be charged an amount called the “option premium” which could run 15 to 20% of the current market price of the tulip bulb.

For example, let’s say a tulip bulb is currently worth $100 dollars. FYI – I’m using US dollars for simplicity. A “call option” would cost the buyer approximately $20 dollars. If the price of the bulb moves up to $200 dollars, the option holder would exercise his or her right – the holder would buy the Tulip Bulb at $100 and at the same time, sell it at the current price of $200.

From this transaction, the “call option” holder essentially nets a profit of $80 dollars. $100 dollar appreciation of the tulip bulb minus the $20 he or she paid for the call option.

Smart way to make money right? The person just quadrupled his money by using the “call option” instrument, while an outright buyer would only have doubled his or her money.

These “call options” allowed individuals to leverage their money to increase potential rewards. Of course this came with significant added risk.

The Collapse​

But just like many speculative bubbles, the confidence in the bulbs started to wane and the dam cracked.

The prices on these bulbs got so high that some people decided that it would be smarter to just start selling these bulbs.

By the end of the year 1637, prices began to fall and never looked back.

A large part of the rapid decline was driven by the fact that many people had purchased bulbs on debt and credit – speculating that they could pay back their loans once they sold their bulbs for a profit.

But once the cracks started showing and prices started to drop, holders were forced to liquidate whatever they had at any price.

Smithsonian Magazine noted that

“[h]undreds who, a few months previously had begun to doubt that there was such a thing as poverty in the land suddenly found themselves the possessors of a few bulbs, which nobody would buy,” even at prices one-fourth of what they paid. – Smithsonian Magazine

Like a snowball rolling downhill, bulb deflation grew at an alarming rate and in no time, panic set in.

The government tried to step in and say that there was no reason that tulip bulbs should fall in price – but like many good intentioned government interventions, no one listened. People went bankrupt and dealers refused to honor their commitments to buy tulip bulbs.

Eventually the price dropped so much that tulip bulbs became almost worthless – selling for no more than a price of an onion.


Spectacular booms are not new. 10 years ago we saw it with the housing market. 20 years ago we saw it with the internet bubble. And 400 years ago, we saw it with, of all things, some exotic flowers.

The common theme across all of them has been this. Greed. Greed has been an essential feature of every spectacular boom in history. And sadly, every spectacular crash.

In each case, some very few people have made money, some of the time. However, most emerge with pretty big scars.

As in the case of the 2008 housing market and the 17th century tulip bulb market, unsustainable prices can persist for several years. However, eventually, they reverse themselves and these reversals aren’t gradual. They come with the suddenness of an earthquake.

Few nimble individuals are lucky enough to anticipate the change in wind and are able to escape before everything comes down. But these are rare cases.

My takeaway is this.

When we see people making spectacular returns through what seems like spectacular investments like today’s NFTs and Cryptocurrencies – it may feel hard to resist the urge to jump in.

I’m not saying there isn’t a future for cryptocurrencies or NFTs – because I admit, the technologies behind these items are pretty amazing.

And I do believe that some of these technologies will have usage in the future – similar to how a lot of the technologies that drove the bubble eventually came to grow the internet to we know what it is today.

However, I can’t help but have an eerie feeling when I look at how it has recently captured the imagination of the public, as well as having spillover effects to other markets.

I can’t shake the feeling that it sounds so similar to the madness that captured the public 400 years ago in a small country called Netherlands.

Whenever we see cool new items come into the market, it’s easy to get swept up in the frenzy.

However, let’s also look to history to get some wise perspective.

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