Dutch Tulip Bulb Market Bubble Definition

The Dutch tulip bulb market bubble is one of the most famous market bubbles and crashes 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. 

The tulip was brought to Holland in 1593 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 grow from seeds or buds that grew on the mother bulb. A bulb that grew from seed would take seven 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 which evolved from a mosaic virus strain. This variation was a catalyst causing a growing demand for rare, “broken bulb” tulips which is what ultimately led to the high market price.

• The Dutch Tulip Bulb Market Bubble is one of the most famous bubbles and crashes of all time.
• At the height of the bubble, tulips sold for approximately 10,000 guilders, equal to the value of a mansion in the Amsterdam Grand Canal.
• Tulips were introduced to Holland in 1593 with the bubble occurring primarily from 1634 to 1637.

By the end of 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. The event destroyed relationships built on trust and people's willingness and ability to pay.

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. They insisted that such great wealth was ungodly and the belief remains 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. 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 famous 1841 book Memoirs of 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."

Dutch speculators spent incredible amounts of money on these bulbs, but they only produced flowers for a week—many companies formed with the sole purpose of trading tulips. However, the trade reached its fever pitch in the late 1630s.

In the 1600s the Dutch currency was the guilder, which preceded the use of the euro. According to Focus-Economics.com, at the height of the bubble, tulips sold for approximately 10,000 guilders. In the 1630s a price of 10,000 guilders equated roughly the value of a mansion on the Amsterdam Grand Canal.