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Lessons from history VII – Tulip mania and the ‘bubble’ propaganda of elites

The tulip mania is one of the most famous episodes of financial history, constantly evoked by the press and academia to illustrate or debate on the irrationality of speculation. Yet the tulip mania is not so much a financial crisis as the product of Amsterdam traditional financial elites’ propaganda, in a troubled context where their power became more and more uncertain.

If you have an interest in finance, you are likely already to have heard of tulipmania, a minor but colourful crash in early finance. Indeed, in most economic history books, the tulip crisis that hit Amsterdam in 1637 is presented as being the first real financial crisis. For journalists, comparing present-day speculation to 17th century Holland has become an irresistible way to open an article about any item whose price has risen, from bitcoins to real estate to fine wines in China.

However, it is now established that speculation on tulip bulbs had no significant consequence whatsoever on Holland, the leading economic power of the 17thcentury. In a landmark study of the so-called “Dutch Golden Age”, Jan de Vries and Ad van der Woude sweep the whole episode in one paragraph.

So how is it that the story has even come to our ears?

Tulipmania and the debate over rationality of financial markets

What exactly did the crisis consist of? Very simply, prices of tulip bulbs rose to extravagant levels until they plummeted brutally in 1637. Again, Holland was the world’s richest economy; its wealth was obviously not based on tulips, but on more fundamental goods like cloth and wheat. The economy did not suffer from the episode.

So why should we get interested in this Amsterdam event today? Well, many economists around the world keep on trying to dig up new data on the tulip crisis, hoping for a better understanding of financial markets. On October 4th 2013, one of the Economist’s blogs dedicated an article to new research over the extent to which the tulipmania was rational. Indeed, Keynesians have been using the mania as an illustration of the “animal spirits” theory, which reckons that financial markets are essentially irrational and driven by imitation.

On the contrary, advocates of laisser-faire argue that markets are “perfect”. Then, bubbles cannot exist; since prices are always determined rationally by free market forces. And if it seems too hard to justify absurd prices, just blame the government. In this case, according to a study by Earl Thompson, “the market for tulips was an efficient response to changing financial regulation — in particular, the anticipated government conversion of futures contracts into options contracts”. So tulip bulbs were worth more than ships, but this was only rational market response to bad policy…

Was the tulip crisis a financial crisis?

On both sides, it appears that those historical debates are essentially determined by political motivations. A much more important contribution to our knowledge of the mania is a 2007 book by historian Anne Golder. She comes back to an important question: to what extent is the adjective “financial” at all relevant for the tulip crisis? Despite the fact that financial contracts (options, futures, etc…) contributed to the soaring of prices, Golder claims that the crisis is foremost a social and cultural one. It revealed the disruptions that Dutch elites had to go through in a period of rapid growth and massive immigration.

Hence, the part of the crisis that most deserves our attention is the aftermath. As early as 1637, pamphleteers, illustrators, commentators, clergymen, etc… all grasped the episode. It only took three more years for Brueghel to produce his famous painting, which shows that contemporaries very rapidly perceived the fantastic and comic dimensions of the tulip mania.

Dominant discourse immediately interpreted the crisis as collective folly. In particular, all eyes turned to unscrupulous speculators, blamed for massively investing in a market designed for ‘connaisseurs’, all for the sake of profit. Scenes describing common people trading while drinking in inns also aim at creating a contrast with the enlightened dealings of the botanist bourgeois.

A socio-cultural interpretation of crises

That is where the parallel with recent history becomes interesting. When the recent sub-prime bubble collapsed, commentators rushed in to denounce the madness of granting mortgages to insolvent families, pinning blame on mortgage brokers and homebuyers as well as banks. Of course, the 2008 financial crisis was a much wider problem than just the market for securitized mortgages. In 17th century Holland also, speculation took place on all sorts of commodity markets, and most notably on wheat. Tulips simply happened to provide a nice story.

For those seeking to safeguard the image of perfectly efficient and rational markets in order to keep legislators from intervening, there are two ways. The first consists of denying the possibility of speculative bubbles, an argument that was widespread among renowned economists in the early 2000s, most famously Alan Greenspan. The second is to denounce fringe market participants so that the market and its mainstream players can avoid blame. Then, the more you do, the better, just like the 17th century Amsterdam pamphleteers.

Dutch protestant elites chose the second way so they could take revenge on the newly rich who had benefited from the thriving international trade. This is the only reason why the tulip mania has survived in collective memory and has reached our ears. The lessons of the mania may therefore lay not so much in the proto-developed financial mechanisms of the time, but in the cultural and political power of the elites.

Another crucial lesson: there are divisions among the elites of the financial industry, and crises are also moments of reshuffling within this world. Which is why, in addition to the economic and theoretical debates on the functioning of markets, regulation should also take into account the sociological mechanisms that rule finance, if not financial markets.

Fabien Hassan


  • Christian Chavagneux, Une brève histoire des crises financières, des tulipes aux subprimes, La Découverte, 2011 [in French]
  • Anne Goldgar, Tulipmania: Money, Honor and Knowledge in the Dutch Golden Age, University of Chicago Press, 2007 [in English]
  • Jan de Vries, Ad van der Woude, The first modern economy : success, failure, and perseverance of the Dutch economy, 1500-1815 , Cambridge University Press, 1997 [in English]
  • Thompson, E. A. (2007). “The tulipmania: Fact or artifact?” Public Choice, 130(1-2), 99-114. [in English]
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