
Tulip mania: the classic story of a Dutch financial bubble is mostly wrong - okket
https://theconversation.com/tulip-mania-the-classic-story-of-a-dutch-financial-bubble-is-mostly-wrong-91413
======
fab1an
This is one of the classical two-layered 'did you know' /'podcast' memes. The
first layer is about a well known, but not necessarily universally known
historical event/idea that's been a _interesting tidbit of knowledge_ for
decades, usually well suited for metaphors of all kinds ("Bitcoins are like
Tulip Mania 2.0). The second layer always asserts the opposite of that meme,
or rather the _did you know this isn 't actually true_ position. The likely
Truth is ultimately a somewhat boring synthesis of both positions, that may
make for a good, but not a great smarty pants podcast topic. I love those.

------
_pctq
Additionally, it was not just any tulip that was traded so high, it was a
specific strain that was considered especially beautiful and that people did
not succeed in systematically reproduce. There was a good reason for that: the
beauty was not caused by genes, but by a virus [1][2].

[1] [https://io9.gizmodo.com/5905247/the-virus-that-destroyed-
the...](https://io9.gizmodo.com/5905247/the-virus-that-destroyed-the-dutch-
economy)

[2]
[https://en.wikipedia.org/wiki/Tulip_breaking_virus](https://en.wikipedia.org/wiki/Tulip_breaking_virus)

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mcguire
I get that the tulip thing it's over-blown, but...

" _When the crash came, it was not because of naive and uninformed people
entering the market, but probably through fears of oversupply and the
unsustainability of the great price rise in the first five weeks of 1637._ "

So, what happened in January, 1637?

" _So those who lost money in the February crash did so only notionally: they
might not get paid later. Anyone who had both bought and sold a tulip on paper
since the summer of 1636 had lost nothing. Only those waiting for payment were
in trouble, and they were people able to bear the loss._ "

Does the author know how debts work?

~~~
skookum
Even a small amount of time spent perusing Bitcoin fora reveals an endemic
belief that if one doesn't sell, one has incurred no loss. Any conversations
discussing a realized loss will quickly surface the "weak hands" meme wherein
the loser simply didn't have sufficient will or presence of mind to keep
HODLing and selling their Bitcoins served to benefit the better investors who
were able to buy them at a discount.

Perhaps the author is simply playing to the zeitgeist?

~~~
cgmg
Do you have any evidence to back up your claim that the author believes “if
one doesn't sell, one has incurred no loss”?

~~~
skookum
I made no such claim about the author's beliefs. I posited that the author was
pandering to an audience with such beliefs, an audience who loves these "tulip
mania didn't happen" stories because in their logic they somehow serve as
rebuttal to the possibility that crypto-currencies are experiencing a
speculative mania of their own.

~~~
cgmg
> I posited that the author was pandering to an audience with such beliefs

Why did you posit that?

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hal9000xp
A while ago I also read this article:

[https://www.economist.com/blogs/freeexchange/2013/10/economi...](https://www.economist.com/blogs/freeexchange/2013/10/economic-
history)

> Earl Thompson, formerly of UCLA, takes a different approach. He reckons that
> the market for tulips was an efficient response to changing financial
> regulation—in particular, the anticipated government conversion of futures
> contracts into options contracts. This ruse was dreamt up by government
> officials, who themselves were keen to make a quick buck from the tulip
> trade.

> In plain English, investors who had bought the right to buy tulips in the
> future were no longer obliged to buy them. If the market price was not high
> enough for investors’ liking, they could pay a small fine and cancel the
> contract. The balance between risk and reward in the tulip market was skewed
> massively in investors’ favour.

> Thompson argued that popular interpretations of tulipmania have failed to
> distinguish between options and futures. Tulipmania was only a contractual
> artifact. There was no “mania” at all.

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raverbashing
I love when the article contradicts itself

> But it wasn’t irrational to pay a high price for something that was
> generally considered valuable, and for which the next person might pay even
> more.

Yes it was. It wasn't "irrational", as buying an expensive luxury bag isn't.

What's irrational is the buying - flipping - selling that made the price rise.

> When the crash came, it was not because of naive and uninformed people
> entering the market, but probably through fears of oversupply and the
> unsustainability of the great price rise in the first five weeks of 1637.

This is an interesting aspect, it was a bubble but the entry barrier made it
involve fewer people. I guess the first "democratic" bubble was the one that
lead to the 1929 crash

~~~
ufo
The south sea bubble is an earlier example of a Democratic bubble

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Applejinx
True and relevant, even if they'd like to say it's not.

The tulip thing is just what happens, in myriad forms, when the Gini
coefficient gets too out of hand. It's not that lots of people were ruined
through gambling desperately on bizarre, random things. It's that there were a
bunch of people so insensibly wealthy that they didn't need to be even
slightly rational.

Also see 'Veblen good'. When conditions allow this, rationality just stops
mattering.

~~~
raverbashing
Don't forget there were people remortgaging their houses to buy bitcoin, this
will not end well

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joosters
_But it wasn’t irrational to pay a high price for something that was generally
considered valuable, and for which the next person might pay even more._

What? That's no way to 'disprove' a bubble. Of course the people buying stuff
thought it was valuable, or that there would be a greater fool to sell it to.
That doesn't mean they were right.

 _Although it’s true that the most expensive tulips of all cost around 5,000
guilders (the price of a well-appointed house)..._

How is that not irrational? Come on.

 _I was able to identify only 37 people who spent more than 300 guilders on
bulbs_

Is this evidence of absence, or absence of evidence?

 _Anyone who had both bought and sold a tulip on paper since the summer of
1636 had lost nothing._

Well, yes. It's the bagholders that lose out in a bubble. If you manage to buy
and sell something that's overpriced, then you'll be ok. But _someone_ will be
left holding it.

In any case, the south sea bubble is a far far better fit for bitcoin and
crypto coin mania. They even had comparable ICO sales!

~~~
bufferoverflow
> _How is that not irrational? Come on._

It's not irrational in the most basic economic sense - supply and demand
determines the price.

Why is gold so expensive? Around 90% of it is being hoarded, not used
industrially. People think it's valuable, the supply is limited, therefore it
is valuable. Same with cryptocurrencies. Actually, particular cryptocurrency
supply is truly limited, unlike gold, which is extremely abundant in our
universe.

The only weird thing about the tulipmania is that tulips can be (relatively)
easily grown.

~~~
joosters
_Actually, particular cryptocurrency supply is truly limited, unlike gold,
which is extremely abundant in our universe._

Depends what you mean by a 'particular' cryptocurrency. There's certainly been
no sign of a limit on bitcoin, what with all its forks. And there's no end of
alternative copycat coins filling the list at coinmarketcap.com. You have to
take a leap of faith to trust that miners won't change the system once all the
'limited' 21 million original bitcoins have been produced...

~~~
tlrobinson
Ultimately miners aren’t in charge. If miners try to change the rules, but the
majority of users ignore them, the miners’ fork will be close to worthless.

~~~
pbhjpbhj
Doubt you need miners in order to process transactions, how would you do it
without any miners?

~~~
tlrobinson
If the miners are financially motivated and rational they wouldn’t refuse to
mine the most valuable fork. They have a large investment in hardware and
would lose a lot of money.

If for some reason they did refuse, or worse, attacked the network (with
double spends or censorsing transactions) then the users could emergency fork
to change the proof of work and attract new miners.

------
olivermarks
...'Charles Mackay, whose 'Extraordinary Popular Delusions' and 'the Madness
of Crowds' of 1841 have had huge and undeserved success'.

Another example of books which get it all completely wrong yet become what
people believe and 'how history happened'...

------
trishmapow2
The Wikipedia article is also good:
[https://en.wikipedia.org/wiki/Tulip_mania#Modern_views](https://en.wikipedia.org/wiki/Tulip_mania#Modern_views)

------
forkLding
Interestingly most modern investing websites use the over-exaggerated "fake
news/clickbait" version of the Tulip mania if it is over-exaggerated, even
investopedia uses it as the first example of a bubble:
[https://www.investopedia.com/terms/b/bubble.asp](https://www.investopedia.com/terms/b/bubble.asp)

The author of the article is seemingly implying that it is rather another form
of conspicuous consumption? Such as with fancy clothes or Air Jordans?

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blunte
Well! This explains why when I mention this fictional bubble to a Dutch
friend, they seem to know nothing of it.

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RexetBlell
The modern day tulip mania has nothing to do with Bitcoin. This is the modern
day mania:
[https://en.wikipedia.org/wiki/Salvator_Mundi_(Leonardo)](https://en.wikipedia.org/wiki/Salvator_Mundi_\(Leonardo\))
Someone paid almost a half a billion dollars for that painting

~~~
nyolfen
i'd be more surprised if it weren't in the service of some kind of tax evasion
or money laundering scheme

~~~
dagw
It was (essential) bought by the Abu Dhabi Tourism board to be displayed at
the Louvre Abu Dhabi. Basically they bought it as an expensive advertising
campaign for their big shiny new museum

~~~
nasredin
$500,000,000 for a week of advertising for a museum?

I think the only thing they are advertising is they have a lot of money.

I'm guessing targeting other people with a lot of money.

~~~
dagw
How many people a year go to the 'real' Louvre year after year just to see the
Mona Lisa? I guess they're hoping for a similar long term pay off.

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rkagerer
Thank you for this. Regardless of one's take on it, it's nice to see someone
propagating well-researched background information instead of blindly
repeating rhetoric.

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coldtea
TL;DR; Found some irrelevant differences between the exaggerated version and
the actual history, and I'm going to pretend that everybody believes the
ultra-exaggerated version and that they matter.

~~~
cgmg
Can you present an example?

~~~
coldtea
Like how prices weren't that high as people think, and then citing 37
documented examples of people that than paid what amounts to the yearly wage
of a master craftsman for some bulbs (and those are just those that they could
find documented) -- as if those are not crazy prices still.

Or how the author says that bulbs were exchanged in neighborhoods and taverns
and such, to brush off the craze as "small scale", and then goes on to say how
specialized exchanges emerged in most cities, with experts in such trade etc
-- without seeing the contradiction.

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whataretensors
Tulipmania is obvious FUD. The comparison makes no sense. It's about the
quirks of inefficient market with low volume low supply where each item has
unique properties. Can't think of a currency like that. Maybe cryptokitties,
but that only fulfills the unique properties aspect.

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ebbv
So HN has devolved to the point where people are defending the actions of
people in _the textbook case_ of a speculative bubble. Yikes....

