Tulip trading

The 1630s in Amsterdam was the time of the great Tulip Bulb Bubble. “Tulpenwoede” or tulip madness approached its apex in 1637 when bulb contracts, particualarly for Semper Augustus, exceeded 5,000 gilders. Perhaps fueled by speculators and gamblers, most professional tulip practitioners avoided the wild market. While 5,000 gilders could buy a house, just a few years earlier when prices were more reasonable, the same contract was 1,000 gilders. As is the case with moden commodity contracts, depending on weather and yield, the future value was not, as history seems to be written, many orders out of the ordinary.

But the final months of the bubble were driven increasingly by amateur speculators, out for quick profit, not the central tulip business players. What failed was contract law, in which the trader was not really required to buy and take delivery, but could exit the contract with a small fine. The actual spot delivery prices of tulips never strayed from reasonable levels. So in effect, Tulip Mania was not caused by wild trading schemes, speculation or a quest for profits. It was caused by lawyers, politicians and the courts, who rarely find the insight to design a level playing field. The lesson of Tulip Mania should be a healthy distrust of ability of our lawyer-politician class to enact good legislation, when their goal is to buy votes and extract campaign contributions.