Heed the lessons of ‘tulip mania’

Article Excerpt

Tulip mania was a period in the Dutch Golden Age (roughly spanning the 17th century) during which prices for some tulip bulbs reached extraordinarily high levels. However, they then abruptly collapsed in February 1637. It was generally considered to be the first recorded speculative “bubble,” and both market analysts and academics have used the tulip mania to describe the main characteristics of an asset bubble. Tulips first arrived in Western Europe in the late 1500s from Turkey; they were considered as exotic as eastern spices and oriental rugs. It looked like no other flower native to the continent and quickly became a luxury item destined for the gardens of the affluent: Initially, it was a status item that was purchased—because it was expensive—but investors and other people quickly realized that there were profits to be made from the rising prices and ready tradeability of tulip bulbs. People were buying bulbs at higher and higher prices to re-sell them for a profit. In…