How did this ever happen?

I’m currently reading Extraordinary Popular Delusions and the Madness of Crowds, which is a book about bubbles and excesses, and it is only natural that the Tulip Mania found its way into the book.

For those of you unfamiliar with the Tulip mania, it was a bubble in Holland in the 1600s which involved Tulips! Yes, the flowers. Tulips speculation and craze reached insane levels during that time, and it’s incredible how much people were willing to pay for these bulbs.

Here is one excerpt from the book that shows just how far the craziness went:

It is related that, at one time, early in 1636, there were only two roots of this description to be had in all Holland, and those not of the best. One was in the possession of a dealer in Amsterdam, and the other in Harlaem. So anxious were the speculators to obtain them that one person offered the fee-simple of twelve acres of building ground for the Harlaem tulip. That of Amsterdam was bought for 4600 florins, a new carriage, two grey horses, and a complete suit of harness. Munting, an industrious author of that day, who wrote a folio volume of one thousand pages upon the tulipomania, has preserved the following list of the various articles, and their value, which were delivered for one single root of the rare species called the viceroy: –

Two lasts of wheat                          448

Four lasts of rye                              558

Four fat oxen                                   480

Eight fat swine                                240

Twelve fat sheep                             120

Two hogsheads of wine                 70

Four tuns of beer                            32    
Two tons of butter                          192
One thousand lbs. of cheese       120
A complete bed                              100
A suit of clothes                             80
A silver drinking cup                   60                              
                               – – –                2500        ——

It’s hard to believe today that people could pay so much for just a flower, and yet we know that we are not smarter than people who lived before us and are prone to the same follies that they committed.

In fact all the bubbles and busts during the past few decades have shown us that no one really learns anything from the last bubble. People keep making the same mistakes again and again but with different assets or commodities. Almost every one I’ve told this story has told me that it’s very unlikely that Tulip Mania type situation can ever emerge again but I feel that it’s not all that out of question given how crazy stock markets have behaved in the past. What do you think? Can you ever picture a Tulip Mania type craze happening in India?

25 thoughts on “How did this ever happen?”

    1. So true.
      I feel not just the relationship b/w asset prices and rental but also the proportion in which they are moving is important as well.

  1. Gold is in final leg of bull run of the current wave which may last 2 to 2.5 years and price will reach between 2600 $ to 3200 $ and finally it may spike above 3200$ for few hrs.

  2. I think,Gold have mere covered its multi decade backlog and under performance.

    Its difficult for Gold prices to correct significantly till incremental Fed rate cycle begins…..But still,prices may not go below $1200-$1300…

  3. real estate in metro’s like mumbai is analogous to this story.
    i remember reading in the news sometime back about a flat in worli having being sold for 1.11 lakh/sq ft. what would one call this? insanity of course.

  4. Right now EMU farming bubble has just burst in Tamilnadu..not long ago Vanilla cultivation was a rage in Kerala only to burst shortly after..

    1. I have actually seen people growing vanilla in Kerala and that’s a very apt example. I wonder what happened to those people. What is EMU though? Never heard of that.

      1. Emu is the bird native to NZ and Aus. There are many ads in Tamil TV channels about investing in Emu farming and exports. But I think this craze was at its peak an year or so back and now fading.

        Some past crazes I can recollect are the Teak wood craze in TN ( back in the nineties) and the Shrimp farms craze in AP.

        1. Wow! the bird is the first thing that came to my mind but I didn’t think it was possible for people to go crazy after the bird and start farming the bird itself! I must read more about this!

          1. It is not a bubble really. Its more of a scam or ponzi scheme where poor farmers were sold into the idea of profits over a bird and the seller disappeared with the money.
            TN always has some scam happening on some lines every decade. Last decade was chit funds and before that teak.Overall I think its because the average Tamilian has less business sense than a Gujarati or Marwari which makes them gullible!

  5. . More than the craze I think it was very ingenious of the Dutch to make a business out a boring flower which blooms only 15 days in a year.With no resources and flood problems they have ingeniously built an economy.
    Gold no bubble, no bubble holds up for that long!

    1. Try to understand this basic concept, Indian rupee is the real tulip not gold. People are willing to pay for gold because rupee is losing value. Better buy gold now before it goes to 1 lakh per 10 grams.

    1. Real estate at some places is really crazy, the other day someone was telling me a joke that at one house he was looking at in Mumbai the parking space alone was costing some 30L or so and he asked if they gave a car free with it 🙂

      1. That was a good one! 🙂 Is it really parking or a park for 30 lakhs ??

        Realtors will start a new offer soon – “Book your parking in Mumbai and get a mansion free in Africa” 😉

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