The world experienced its first economic bubble when the Dutch went bonkers for tulips in the 1630s. See omnystudio.com/listener for privacy information.
Chapter 1: What is Tulip Mania and why is it significant?
Hey, and welcome to the short stuff. I'm Josh and there's Chuck and Jerry sitting in for Dave and this is short stuff about tulip mania.
That's right. Tulip mania was perhaps the first financial bubble to happen and then burst. And we should probably talk a little bit about what an economic bubble is, don't you think?
Chapter 2: How does an economic bubble form and burst?
Yeah. It's where the price of a good or an asset or something like that, let's just say item. Sure. Goes sky high, way, way, way beyond any reasonable value that it should have. And it's because of exuberant trading. And the more exuberant the trading is, the more people get sucked in by it. And they want to make some money, too.
So more people start investing and the prices keep going higher and higher and higher. That's the first part of the bubble. There's another less happy side of the bubble, too.
That's right. Because as anyone who's ever been to a bubble rave or played bubbles with your kids or just adult friends who enjoy bubbling... That bubble is going to burst. They all will eventually. And that's what happens with an economic bubble too. The price will drop usually pretty quickly. And a lot of people start selling off very quickly.
And those who get out early enough can usually avoid it. But every single time someone is going to be left holding that asset that is all of a sudden not worth much of anything. And a lot of times people have invested their entire life savings in this stuff. A lot of times they bought this stuff on credit. And all of a sudden, this thing isn't worth that much money.
And they're in real, real financial trouble.
Yeah, it's a bad scene.
Yeah.
And so, like you said, all the way back in the 17th century, people consider the first economic bubble to have surrounded tulips and tulip bulbs in Holland.
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Chapter 3: Why were tulips so valuable during the 17th century in Holland?
That's right. And when you said tulip mania. Yeah. That's really what it was called. You weren't just being cheeky.
No, that's what it's referred to, I'm sure, among economists, among historians, among the Dutch, among podcasters. It's called tulip mania. That wasn't just me being funny.
So a little bit about tulips, native to places like Kazakhstan and Eastern Europe and the Himalayas. They don't look like the tulips in their original form that we think of today. But they have been cultivated over the years and, you know, crossbred to where they look like they look like tulips now. These beautiful tulips popping up here in Atlanta already this spring. Yeah. And they're lovely.
They're grown from bulbs. And they're, I don't know about how easy or hard it is, but they, like I said, are crossbred to create new and exciting varieties and colors.
Yeah. So tulips first arrived in Holland around 1600. The Dutch East India Company was moving spices and exotic goods from the east to Europe, Holland in particular. And tulips arrived. And for the first couple of decades, they were, you know, if you were a plant enthusiast, You probably had a tulip in your collection.
If you were very, very rich and just wanted to show off how cutting edge you were, you might have some tulips in your garden. But they weren't a big deal until 1634. And the reason they became a big deal almost overnight was because those same upper classes and nobility in Holland decided that tulips were now a status symbol.
And that if you didn't have tulips growing in your garden and you were a member of the aristocracy or nobility, you were a total loser with a capital L. That's right.
So in this case, you had, economically speaking, you had a big time demand all of a sudden. But not only was it a big time demand, it was a big time demand of people that had a lot of money. So the price went through the roof very, very quickly. A bulb, a single bulb, One tulip bulb would fetch 2,000 florin.
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Chapter 4: How much did people pay for tulips during Tulip Mania?
And just to put it into perspective, what you could buy back then for 2,000 florin, 16,000 pounds of cheese. 250 tons of beer, a couple of hundred sheep or maybe 16 grown oxen.
Yeah.
And they were paying prices in today's dollars. Thank you, Investopedia, for doing this weird translation. But in today's dollars for a single tulip bulb, they were paying 50 grand, 150 grand, even sometimes for the rarest varieties up to a million dollars for a single bulb.
Yeah, that 50 to 150 grand, that was like day-to-day stuff. Right. That's what a single tulip bulb would go for. Single bulb. It was nuts. Even at the time, there were people who were watching this and they were like, this is crazy. They're tulips for God's sake.
Yeah, they're writing out a giant check with a feathered pen and they're just like, I can't believe I'm paying this amount of money for a tulip.
Right, exactly. I say we take a break and come back and talk some more about Tulip Mania.
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