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Tulip Mania

Tulip Mania

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Tulip Mania

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  1. Tulip Mania How a flower grew into an economic monster!

  2. Holland • A region and former province located on the western coast of the Netherlands • The term Holland is also frequently used to refer to the whole of the country of the Netherlands.

  3. Key Terms • Speculation - investment in stocks, property, or other ventures in the hope of gain but with the risk of loss. • Example: buying stock on the stock market • Example: betting on a horse race • Example: buying government bonds • Financial Bubble - An economic cycle characterized by rapid growth (more $$$) followed by a contraction (less $$$) • Example: The Great Depression • Example: The decline of the .com market in the 90s • Example : The collapse of the housing market in 2007

  4. The Tulip Arrives • Introduced to Europe in mid 16th Century form Ottoman Empire • Became very popular in United Provinces (now the Netherlands) • Charles de l’Ecluse a Flemish horticulture professor started growing them at University of Leiden • Flowers could tolerate harsh climate of the region

  5. A Love Affair Begins • Tulip became coveted luxury item • What is a luxury item? • Can you think of some modern luxury items? • Many varieties were developed: • One-colored tulips known as Coulerens • Multi-colored Cosen, Violetten, Rosen, and Bizarden • Became most popular • Vivid colors, lines, and flames • We now know what caused these variations • “Tulip breaking virus”

  6. “roots” of Tulip Mania • Tulips bloom from April to May for about a week • Secondary blooms appear shortly after • From June to September they can be uprooted and moved • The rest of the year traders developed a market for these flowers • Signed contracts to purchase tulips at end of the season • Betting on being able to sell them for more later • What does this sound like? • Developed many of the modern techniques of finance

  7. The Craziness • “The population, even to its lowest dregs, embarked in the tulip trade” by the promise of wealth • Amusing anecdotes from this period: • 1 bulb for two lasts of wheat, four lasts of rye, four fat oxen, eight fat swine, twelve fat sheep, two containers of wine, four containers of beer, two tons of butter, 1,000 lbs of cheese, a complete bed, a suit of clothes, and a silver drinking cup • In 1635, 40 bulbs for 100,000 florins (keep in mind that a skilled laborer made about 150 florins a year) • Sailor mistook an precious bulb for an onion and ate a breakfast worth a years worth of food!

  8. Why were people willing to pay so much for tulips? • Intending on reselling for even more • What contemporary examples can you think of? • It couldn’t last if people were no longer able to pay that price • February 1637 was that day…people would no longer pay inflated prices • People stopped wanting to buy them (demand dropped) • Prices plummeted • Speculative bubble burst • People were left holding contracts to purchase bulbs at 10x their values • Tulip speculators sought help of government • Declaring contracts void for 10% fee • Government ultimately considered this gambling and didn’t help

  9. On the upside, People still travel to Holland to see their (In)famous Tulips