How did this ever happen?

by Manshu on September 7, 2012

in Books

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: –
                                                            florins.

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?

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