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In the (forgettable) sequel to the movie Wall Street, Gordon Gekko lays out the basic outline of the tulip bubble story as most people know it:

“Back in the 1600’s, the Dutch got speculations fever—to the point where you could buy a beautiful house by the canal in Amsterdam for the price of one bulb. They called it tulipmania.”

Gekko reminds us that tulipmania is remembered as a kind of mass delusion. A frenzy for tulips which quickly reached such a fever pitch that prices for bulbs soared. Bulbs could be sold dozens of times before the bulb itself actually changed hands, and eventually some bulbs ended up selling for the value of a mansion.

And then, when the bubble inevitably burst, the crash came: Tulips lost their value, traders went bankrupt—some even drowned themselves in Haarlem’s canals. The Dutch economy took a hit and plunged into an economic crisis.

It’s a dramatic story that’s been used countless times to warn us against asset bubbles. There’s just one problem.

It’s mostly a myth.

“But it makes for an exciting story,” Anne Goldgar, professor at King's College London, says.

Goldgar is the author of Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age. When she reviewed original sources documenting the tulip bubble for her book, she found a very different story. She tells the real—and equally fascinating—story of the tulip bubble to Barron’s Sarah Green Carmichael, in the pilot episode of a possible new podcast for Barron’s on the history of finance. The podcast explores crucial moments and ideas that have shaped how we think about finance.

Tulips Arrive in Europe

The real story of the tulip bubble starts the same place as the myth: In the court of the Ottoman emperor in Constantinople. Here, Western traders are believed to have encountered the flowers and brought them back to Europe. Tulips arrived at the fashion-forward French court, and then, during the 1500s, made their way to the Dutch elite.

”Tulips are fashionable because there’s a fashion for science and natural history, especially among people who are humanistically educated and relatively well off. One of the things that I found is that people who are collectors of tulip bulbs often are collectors of paintings as well,” Anne Goldgar says.

During the early 1600’s tulips gain popularity and prices start soaring. This is further complicated by the arrival of the plague in the 1630s. However, not the way many people think.

“The argument which is usually put forward is that people thought they were about to die, and therefore they might as well throw their money away on something as stupid as a tulip. That doesn’t represent what I’m seeing in the archives. It seems to me that people are relatively willing for life to go on despite the epidemic.”

The plague did, however, play a role in creating the tulip bubble in a different way, Goldgar says.

“There were people who had a bit more cash because they had acquired some extra money from relatives who had died.”

To put it simply: certain people had some disposable income to spend—on tulips.

Prices Soar—Until They Don’t

The price continued to go up until they reached a peak in February 1636. But it was starting to dawn on people that the tulips might be overpriced. That tulips, which once seemed rare and exotic, were actually easy to grow and propagate.

The tulips that were being sold that winter were still locked in the frozen ground. So the sales were all just contracts—promises written down on paper.

Then, on February 3, 1636, a bulb didn’t sell at an auction in the Dutch city of Haarlem—and that failure to sell caused prices to drop. The bubble was over.

But where the myth of tulipmania claims that long chains of people were affected by the crash, Anne Goldgar says that it was actually only a small number of people who were involved in the trade. And even those people hadn’t lost fortunes.

“I only found 37 people who paid more than 300 guilders for a bulb. Some of the legends of bulbs that people talk about were 1,200 guilders. The highest price I ever saw was 5,500 guilders.”

To put those prices in perspective: In 1637, one guilder was worth about $10 in today’s money. 300 guilders would be about $3,000. That amounts to quite good yearly wage at the time. So those 37 people who paid more than 300 guilders—or a year of wages—did lose money. But no one went bankrupt because of tulips, Goldgar says.

”There are people who lose money, but we’re talking about a small group of people and most of them who have enough money that it doesn’t really make that much difference. They are not happy about it but they can afford it.”

“As for the economy of the Netherlands, it was never even slightly dependent on this. As far as I can see, it was completely unaffected by tulipmania.”

A Tale of Fools

In the end, no one went bankrupt over tulips, no one threw themselves in the canals, and only the people who could afford to lose significant money did so. The tulip bubble didn’t send the Netherlands into an economic crisis. But Anne Goldgar says the tulip bubble shook Dutch society in a different way. It had brought about the idea that people could rise in society through speculation—not hard work or a noble lineage.

“That is very central to the big concerns many [wealthier] people had about Tulip Mania—this idea that common people might suddenly be your neighbors and compatriots. They would be on the same social standing as you because they had the money, when actually they didn’t deserve it because they didn’t get there through work, and because they don’t have the breeding that they ought to have. So there’s a real concern about social status.”

And the country was undergoing other major changes. Trade was booming, and immigration was rising.

It’s is the beginning of a major shift in how the Dutch economy and society worked, and not everyone was ready for that. In pamphlets and popular songs, Goldgar sees a clear sense of schadenfreude when the tulip bubble bursts. One which she sees repeating itself in financial crashes through history.

“And in 2019, when you hear people complaining about Bitcoin and warning about it, what you are hearing are the voices of people in 1637 saying: you shouldn’t be involved in this trade. You’re the wrong person, you don’t know enough.”

“That’s part of the moral tone that I think is quite interesting, that only greedy people get involved in this kind of thing—and they need to control themselves.”

The story of the tulip bubble boils down to a story of fools and greed, Goldgar says. And that’s why it sticks with us.

Let us Know What You Think

This article is based on a pilot episode of a new Barron’s podcast. If you have thoughts or suggestions, please write to host Sarah Green Carmichael at Sarah.Carmichael@barrons.com and producer Mette Lützhøft at mettelutzhoft.jensen@barrons.com.

Barron’s has two other finance and business podcasts: a weekly podcast called The Readback, hosted by Alex Eule, and our daily investment briefing, Numbers By Barron’s.

Email: editors@barrons.com