What is the {term}? Dutch Tulip Bulb Market Bubble

The Dutch tulip bulb market bubble is one of the most famous market bubbles of all time. It occurred in Holland during the early 1600s when speculation drove the value of tulip bulbs to extremes. At the height of the market, the rarest tulip bulbs traded for as much as six times the average person's annual salary. 

BREAKING DOWN Dutch Tulip Bulb Market Bubble

The tulip was brought to Europe in the middle of the sixteenth century from the Ottoman Empire. A growing interest in natural history and a fascination with the exotic among the wealthy meant that goods from the Ottoman Empire and farther east fetched high prices.

According to Smithsonian.com, the Dutch learned that tulips could be grown from seeds or buds that grew on the mother bulb. A bulb that grew from a seed would take 7 to 12 years before flowering, but a bulb itself could flower the very next year. "Broken bulbs" were a type of tulip with a striped, multicolored pattern rather than a single solid color, and the growing demand for these rare, “broken bulb” tulips is what led to the high market price for tulips.

Growing Speculation

Dutch speculators spent lots of money on these bulbs, but they only produced flowers for a week. According to popular legend, the tulip craze took hold of all levels of Dutch society in the 1630s. A Scottish journalist Charles Mackay, in his popular 1841 work "Extraordinary Popular Delusions and the Madness of Crowds," wrote that "the wealthiest merchants to the poorest chimney sweeps jumped into the tulip fray, buying bulbs at high prices and selling them for even more." Companies were formed for the sole purpose of trading tulips, which reached fever pitch in late 1636.

The Bubble Bursts

By February 1637, the bubble had burst. Buyers announced they could not pay the high price previously agreed upon for bulbs and the market fell apart. While it was not a devastating occurrence for the nation's economy, it did undermine social expectations because relationships that were built on trust and people's willingness to pay were destroyed.

According to Smithsonian.com, Dutch Calvinists painted an exaggerated scene of economic ruin because they worried that the tulip-driven consumerism boom would lead to societal decay. Their insistence that such great wealth was ungodly remain to this day.

The obsession with tulips — referred to as "Tulipmania" — has captured the public's imagination for generations and has been the subject of several books including a novel called "Tulip Fever" by Deborah Moggach.