Tulipmania and the Econo-Cultural Breakdown
[Book Review: Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age by Anne Goldgar • University of Chicago Press • 2007 • 425 pages]
Modern financial history is a long series of spectacular asset bubbles followed by equally dramatic crashes. Before, during, and after, the question always arises — whether it's stocks, bonds, real estate, or collateralized debt obligations — what is the cause of such, as it appears in hindsight, folly?
A testament to this eternal search for the answer is the frequent publishing of new editions of Charles MacKay's 1841 classic book on the subject, Extraordinary Popular Delusions and the Madness of Crowds, the latest of which was 2007 (paired with Gustave Le Bon's The Crowd) after a handsome hardback edition with a photo of white tulips adorning the cover was just published in December 2003 by Harriman House, an edition ranked in the top twenty in sales at online bookseller Amazon in the economic-history category.
Economists and investors continue to be fascinated with the episode that the tulips on the cover of MacKay's work represent. But historian Anne Goldgar contends that there were no crowds in Holland bidding up the price of tulip bulbs to absurd levels in the mid-1630s as Mackay contends. In her book, Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age, Goldgar argues that modern financial writers' reliance on Mackay's account of tulipmania is misplaced. Mackay's source was the propagandist Johann Beckmann, whose sources were suspect, according to Goldgar.
In very thorough fashion, Dr. Goldgar, whose specialty is 17th- and 18th-century European cultural and social history, traces Beckmann's various sources and the sources of those sources. Ultimately, Goldgar's exhaustive research convinces her that tulipmania was not all that big a deal as an economic event. After all, the Dutch economy wasn't destroyed after the bust, and despite what some have written, most of those who engaged in the tulip trade lived happily ever after (if they didn't die from the plague, that is). "Tulipmania has always been more a warning than a historical event," claims the author.
Goldgar contends that tulipmania was a social and cultural crisis, not a financial one. She isn't interested in finance and economics, but instead is "interested in print culture, the culture of collecting, and the interaction of society, art and science," according to the King's College London website. Thus Goldgar's Tulipmania is more about Dutch art and society than speculation and price movements.
The author spends a good part of the book developing the case that the collecting of tulips was only an extension of art collecting for but a few in the Dutch upper class. These connoisseurs of flowers, known as liefhebbers, knew each other and in some cases traded flowers with each other. Goldgar paints these liefhebbers not as speculators but as collectors who knew the value of and enjoyed their flowers for aesthetic reasons. Profit was not their motive, but "their concept of rarity, their thrill when they found 'something strange' was always paramount," gushes the author.
But of course it wasn't that simple. After all, Goldgar chronicles numerous lawsuits that were spawned by busted tulip deals. Some of the litigation lasted for years after the bulb price crash in February 1637. There was significant money at stake and there were those who expected tulip-bulb price increases to provide for their heirs. "As trade in tulips heated up, some buyers, at least, wanted whatever could command the highest price," Goldgar admits. "The fact that by this time some tulips could change hands many times before they flowered makes it clear that at this point tulips were valued by some only for their profitability."
Later in Tulipmania, the author further undermines her thesis writing that gambling was a central feature of Dutch culture, and that it "sometimes seemed that the Dutch would make a bet on anything." But then she flip-flops again and cites Brown University economist Peter Garber who contends that tulipmania was not a mania at all, but is explainable by the market fundamentals of supply and demand. "Tulipmania was only irrational after the fact; if the market had held, it would have been supremely sensible to invest one's money in tulip bulbs," writes Goldgar, presumably with a straight face. But even Garber can't explain the price history of the common Witte Croonen bulb, which rose in price twenty-six times in January 1637, only to fall to one-twentieth of its peak price a week later.
Price bubble or not, the author's research of "all the known sales and quarrels about sales," indicates that less than 400 individuals were involved in the tulip trade in the three major cities of Holland. Interestingly, Mennonites often did this collecting of, and ultimately speculation in, tulips. In 1618, just prior to the tulip craze, Mennonites made up 14 percent of the population of the Dutch city of Haarlem. But their influence was much greater than their numbers, Goldgar explains. Although their faith prohibited them from holding public office, these Mennonites were "frequently wealthy," despite living unassuming lives.
Because Mennonites rejected government, refused to take oaths and bear arms, their families tended to be "strongly interconnected." And much of the tulip trading took place in this network of Mennonite families. So not everyone from chimney sweeps to farmers to nobleman were trading tulips — as the pamphleteers at the time wrote. Early writers like Beckmann, "simply plucked these chimney-sweeps out of the air," Goldgar writes. Instead, "[i]f we cast our eye down the lists of tulip buyers and sellers, in fact, we become entangled in whole webs of family connections."
Although not all the Bloemists (tulip sellers) were Mennonites, none were farmers, nobleman, or chimney sweeps. Most came from a class below local government officials, who incidentally proposed a tax on tulip sales in the autumn of 1636, just months prior to the crash. Goldgar's examination of tax records reveals that bloemists were substantial citizens, with an average age of thirty-nine, and typically involved in international trade or manufacturing, or were professionals such as doctors or lawyers.
As trade in tulips developed, a market developed with rules that governed trades between buyers and sellers. Goldgar refers to this as "a kind of informal order and authority," without making reference to the idea of "spontaneous order": "good order results spontaneously when things are left alone," an idea first worked out by Chuang-Tze and further developed by Pierre-Joseph Proudhon and F.A. Hayek.
But these rules did nothing to assuage what were incredibly risky transactions for both buyers and sellers. These bulbs were often in the ground when sold, and the flowers that would spring forth from a certain bulb in the summer one year could not be counted on to look the same the next year. But the Dutch were quite used to futures trading, as a grain market had developed in the previous century and a securities market was also operating.
Goldgar spends little time discussing what was a thriving Dutch economy in the early to mid-17th century. This modern economy created great wealth from the establishment of global trade, banking, technology, and agriculture. And deposits of coin and bullion at the Bank of Amsterdam were growing by leaps and bounds. It was this economy, awash in money, that created the environment for speculation and malinvestment.
The author continually attempts to minimize the financial significance of tulipmania, instead insisting that it "was the confusion of values, the breakdown of honor, and the destruction of trust…" But the same can be said about the effects on each particular culture during every speculative bubble and subsequent crash, no matter the trading vehicle.
Speculative bubbles are financial events that do great damage not only to pocketbooks and balance sheets but to people's perspectives and values. That's why historians and economists will continue to study the curious trading of tulip bulbs in Holland from 1635–1637. By chronicling the extensive and intertwined network of the real buyers and sellers in the tulip trade, Goldgar puts a human face on tulipmania like no other author has done.
On the book's dust jacket, it is claimed that Goldgar "lays waste to the legends" and that the price bubble and its subsequent burst were not "anywhere near as dramatic as we tend to think." But just as the author believes the legend of tulipmania is exaggerated, the claim that Goldgar's research takes the mania out of tulipmania is overstated.
 Graber, Peter. "Tulipmania." Journal of Political Economy 97 (3) 1989: 556.
 Rothbard, Murray. "Concepts of the Role of Intellectuals in Social Change Toward Laissez Faire" The Journal of Libertarian Studies, Vol IX No. 2 (Fall 1990)
 Day, Christian C. "Paper Conspiracies and the End of All Good Order: Perceptions and Speculations in Early Capital Markets" Entrepreneurial Business Law Journal Vol. 1 No. 2 (2006): 286
 Quinn, Stephan and Roberds, William. "An Economic Explanation of the Early Bank of Amsterdam, Debasement, Bills of Exchange, and the Emergence of the First Central Bank" Federal Reserve Bank of Atlanta Working Paper Series Working Paper 2006–13 (September 2006): 29–31.
 French, Doug. "The Dutch Monetary Environment During Tulipmania" The Quarterly Journal of Austrian Economics Vol. 9 No. 1 (Spring 2006) 12–13.