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netherlands: Business Legends - The true story of flower power. - Forget pockets full of gold and silver and sacks full of wheat - there was once a time when wealth and social standing were measured by something rather less obvious.

by Rhymer Rigby.
Last Updated: 31 Aug 2010

Forget pockets full of gold and silver and sacks full of wheat - there was once a time when wealth and social standing were measured by something rather less obvious.

Which commodity do you think was behind the world's first great market crash? Something valuable, like gold? Something sensible like wheat?

You probably wouldn't plump for the tulip. But, back in the 1630s, in a horticulture-meets-Black-Tuesday scenario, the ubiquitous window box stalwart brought the Dutch economy to its knees.

Tulipomania - as the cognoscenti refer to it - had its roots in the mid-16th century when Conrad Gesner, a Swiss naturalist, introduced the tulip to Europe. The Dutch were at the time enjoying a golden age and, like any newly-enriched people, were susceptible to the most frivolous fashions. Soon, no man of social standing was without a tulip patch, border or, at the very least, a decent window box. Initially, as befits any novelty, the tulip commanded a small premium, but the race was soon on to possess a bloom rarer and flashier than the neighbours. Naturally, the more highly-regarded the tulip, the higher its price.

By the 1620s, a series of support industries had grown up to service the burgeoning tulip sector, and Amsterdam was the commercial centre of its day: bankers built bespoke tulip vaults; a good bulb was recognised as surety against a loan; there was even talk of ditching the gold standard in favour of the tulip. Come 1630, the Dutch economy, once vigorous, mercantile and universally praised, was entirely dependent on the genus Tulipa.

If this sounds ridiculous, it was but a curtain raiser. The Amsterdam stock exchange and the regional bourses spurned other business to trade in the increasingly lucrative bulbs. Every available inch of land was given over to their cultivation and the beau monde amused itself with tulip parties in conservatories, now the focal point of any house that could afford them. Meanwhile, the markets grew ever more sophisticated.

Tulip jobbers, frustrated by the short trading season, began issuing futures contracts on as yet unharvested bulbs. Savvy market manipulators made fortunes and so rapacious was the market that a tulip vendor could often just name his price.

The high noon of this mass hysteria saw the emergence of the tulip analyst.

These split into two camps: the market determinists who thought a bulb worth only what the market would bear, and the tulip-intrinsics, who scrutinised traits such as stem symmetry and petal pigmentation, to construct a given bulb's optimum market profile. The analysts provided a welcome boost for second-division bulbs - a favourable comment could send a hitherto overlooked variety's value soaring. According to one account, a wealthy merchant paid 2,500 guilders - equivalent to four tons of wheat, eight tons of rye, four oxen, eight pigs, 12 sheep, two hogsheads of wine, four tuns of beer, two tuns of butter, 1,000 lb of cheese, a bed, a suit and a silver cup - for a single 'Viceroy' bulb.

Nor was this all good healthy speculation. 'Tulip riggers', the Ivan Boeskys of their era, flourished. A typical tactic was to invest heavily in bulbs from an area, then have cattle stampede those fields to create a shortage. One peasant, having grown a rare black tulip, sold it for 1,500 guilders to a trader who promptly crushed it underfoot. Such measures, explained the trader, were necessary: he too had a black tulip and would cheerfully have paid up to 10,000 guilders to protect its singularity and price. A farmer whose cow bankrupted him by munching its way through his tulips nearly reprieved himself by creating a 'tulip milk' futures market.

In the end, of course, tulipomania was a short high with a very long comedown. During the 1620s and '30s the business infrastructure - other than that related to tulips - had been badly neglected; ever-escalating tulip prices had produced rampant inflation; and most Dutchmen now had nothing more than two (grossly-overvalued) bulbs to rub together. The market peaked in November 1636 and, finally, sanity prevailed: prices dipped, then fell to around 10% of their peak values. Because buying and selling on credit were so commonplace and many had sunk everything into tulips, a substantial chunk of the adult male population was ruined. For the poor who had come up from the gutter, returning to it was tolerable; for the bankrupt rich and middle classes, life was less bearable.

The now destitute Dutch looked to their rulers to pick up the tab but, after an ill-considered token effort, they washed their hands of the matter.

The judiciary, likewise, refused to intervene, arguing that tulip speculation was akin to gambling. And the bankrupt masses were left to stew in the decades-long recession borne of this financial florarmageddon. Needless to say, for all the British gloating over this episode, we learned no lesson from it and 70 years later history repeated itself across the Channel with the rather less ludicrous but equally ruinous South Sea Bubble.

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