Was Dutch tulip mania really a financial bubble?

Probably not in the way the popular story tells it. Recent research finds that most of the trade was not irrational, that few people were involved, and that the crash did not wreck the Dutch economy. Whether the sharp price surge and fall in early 1637 was a genuine bubble is still argued. Economist Peter Garber and historian Anne Goldgar, whose work is summarised by the University of Chicago Press, both challenge the traditional account, though from different angles. [1] [2]

The classic tale describes a nationwide frenzy in which ordinary workers gambled everything, bulbs changed hands hundreds of times, and ruined speculators drowned themselves. Goldgar's archival research, described by her in The Conversation, contradicts this. She found no chain of buyers longer than five, and most were far shorter. She identified only 37 people who spent more than 300 guilders on bulbs, about a master craftsman's yearly wage. The very top price, around 5,000 guilders, was roughly the cost of a well-appointed house. [3]

Buyers were mostly wealthy merchants and skilled artisans, often linked by family, religion or neighbourhood. Goldgar found no bankrupt in those years who could be tied to tulip losses, and she reports that the wider economy was unaffected. She also found that the plague did not drive the buying, since the biggest price rises came in January 1637, when plague was waning. [3]

Garber argued in 1989 that high but rapidly falling prices for rare bulbs are a normal pattern in the flower bulb industry. As a new variety propagates, its price falls as supply grows, while the original owner's stock increases, which can justify very high prices for a unique bulb. He judged that prices of 1,000 to 2,000 guilders for Semper Augustus, and 5,500 guilders in 1637, did not look obviously overvalued, given that single bulbs reached 1,000 guilders in the eighteenth century. [2]

A 2007 paper in Public Choice, titled "The tulipmania: Fact or artifact?", goes further, describing an efficient, fundamentally driven market for tulip contracts and nothing maniacal about prices. The BBC also reports a supply explanation for the fall: in February, shoots would have emerged, and traders may have seen that rare bulbs were becoming less rare. [4] [5]

Garber conceded that one episode resists a fundamentals explanation: in January 1637, prices of common bulbs rose up to twentyfold, and for Witte Croonen by about 26 times, before collapsing in early February. He noted that the futures contracts were made by people with little net worth who may have expected the state not to enforce them. Even so, he said that data are too limited to settle the dispute, and that one could take a side only on the basis of strong prior beliefs. [2]

Goldgar offers a different reading of the crash: fear of oversupply and of an unsustainable rise. Because the bulbs were still in the ground and payment was due in May or June, losses were largely notional, and only those awaiting payment were affected. The Library of Congress guide notes that modern scholars have begun to reevaluate the idea that this was truly a bubble. [3] [6]