Tip Toe Through The Tulips

Tulips have bell or vase shaped flowers and come in a variety of colors and combinations of patterns. Quite beautiful and ornate, tulips have been a prize display flower for many a green thumb. Tulips originated on the Russian and Chinese boarder region and went on to Pakistan, India and the Middle East. It is from the old Ottoman empire that Western Europe ‘discovered’ the tulip. The Austrian Ambassador to the Ottoman Empire at the time brought tulip bulbs back to Western Europe and the bulbs made their way to Holland around 1600. The Dutch climate was not well suited for tulips as they prefer a more mountainous climate however the Dutch were accomplished botanists and through selective breeding and luck the tulip became well established. Ironically, the tougher growing conditions may have weakened the flower leading to infections that enhanced the colorful displays the flowers produced at bloom. Whatever the cause, the resultant array of yellows, reds, whites and purples and the artistic patterns that appeared caused a sensation and tulips became a great status symbol of wealth. Tulip mania was born.

Just what was tulip mania all about? Well human nature it seems. Manias’ can happen with the introduction of anything new given the right circumstances. Rarity and mass advertising can cause a self feeding frenzy to obtain the item at any cost. The Cabbage Patch Doll comes to mind as a resent example of this type of mania. Tulips were rare due to the fact that growing from seeds takes years to reach maturity and as such the first crop of tulips was cloned from bulbs to produce flowers in one season. This caused a rarity that became a seller’s market and coupled with the beautiful fields of flowers produced, people were talking throughout the area about the magnificent tulip and demand went beyond all reason.

The mania and resultant sellers market for tulip bulbs created a twist on a tried and true payment method that farmers have relied on since farming began …the futures contract. The twist was that buyers were willing to sign agreements to pay ANY price for tulip bulbs but with the important catch that they didn’t intend to gaze at the flowers or even eat them but to SELL the tulip bulbs for profit. The price for tulip bulbs was going up and up and to any sane investor this was a ticket to riches. The idea of a tulip bubble forming was not well understood it seems, however, just as today on YouTube and alternative radio, there were a few voices calling the imminent collapse of the real estate market in 2008, the same was true for the tulip bulb market in 1635. At the height of this bubble a tulip bulb would fetch a price that was equivalent to a luxury home. There are many parallels to the housing bubble that formed during the last years, the most notable of which is that in many cases the tulip bulbs were bought on credit. With the intention to flip the bulbs for profit, the upper class used their access to credit to speculate on future price increases having no appreciation, use or even understanding the tulip market. It must be asked if the buyers who were carried away with profit taking realized many florists had planted seeds years earlier and that the potential for a tulip glut was approaching or the fact that the awe and splendor of tulips was losing its initial impact. The fundamental lesson here is the lack of real value tulips had to the buyers.

The tulip market crashed around 1637. There were futures contracts outstanding for prices far above the adjusted value of tulips. The contract holders were not the poor but well to do investors and being ‘too big to fail’ the government stepped in and legislated all futures contracts to options contracts and with a small compensation they were out of the tulip market with their wealth intact. A Goldman Sachs production.

How is the tulip market today? Well aside from the Tiny Tim appearances on the Tonight Show in the 80’s, tulip mania has for the most part subsided. Tulips are in fact big business today. Growers all over are still searching for their perfect tulip. The Dutch are very proud of their tulip varieties and Holland is the largest producer of tulips accounting for billions in exports yearly and with plans to develop a tulip tourism market, ...Holland continues to command the tulip.