Tulip Bulb Speculation

By Greg Wright

MBA, CFE, CFP®, CLU, ChFC

Certified Fraud Examiner

Certified Financial Planner™

Rembrandt tulips with virus

It is difficult to believe that Holland Tulip bulbs once sold for thousands of dollars each.  True.  However, a few years later the same bulb could be purchased for the price of a common onion. 

Tulips were first seen in Europe in 1554 and quickly became the rage of nobility and the wealthy merchant class. They were seen as more attractive than another flower at that time and had an intense petal color, unlike any other plant. 

Holland’s recent independence at that time allowed its economic resources to be channeled into commerce, and the country began its “Golden Age.”  It was at the center of the lucrative East Indies trade, where one voyage could yield profits of 400%.  The newly rich merchants displayed their success by setting up grand estates surrounded by flower gardens, and the plant that became the center attraction was the sensational tulip.

As a result, tulips rapidly became a coveted luxury item; however, tulip’s lengthy propagation time caused a supply squeeze.  Compounding the supply shortage was a profusion of varieties followed by the discovery of a rare multicolor tulip.

The multicolor effects of intricate lines and flame-like streaks on the petals were vivid and spectacular and made the bulbs that produced these even more exotic-looking plants highly sought-after.  These bulbs caused the speculation.

The biology of the tulip contributed to the supply-squeeze that fueled the speculation, in that a tulip grown from a bulb that cannot be produced quickly. Normally it takes 7–10 years to grow a flowering bulb from seed. Bulbs can also produce two or three bud clones annually, but the "mother bulb" lasts only a few years. Properly cultivated, the bud clones  will become flowering bulbs after one to three years. Supply was way behind demand.

This exotic multi-color tulip was rare and in high demand.  The highly sought-after "breaking” or multi-color pattern could only be reproduced through bud clones, not seeds. Unfortunately, the sought-after effects also acted adversely on the bulb, weakening propagation of offsets, so cultivating the most appealing varieties now took even longer.

These rare bulbs became valuable.  Soon, by 1635, prices were rising so fast and became so high that people were selling anything they could liquidate to get more tulip bulbs. Some Dutch believed they would sell their bulbs to unenlightened foreigners, thereby reaping enormous profits. Somehow, the overpriced tulip bulbs enjoyed a twenty-fold increase in value - in one month!

When word got out that tulip bulbs were being sold for ever-increasing prices, more and more speculators piled into the market.

According to one account, by 1623, the sum of 12,000 guilders – considerably more than the value of a smart townhouse in Amsterdam – was offered to tempt one tulip owner into parting with only ten bulbs of the beautiful, and extremely rare, Semper Augustus – the most coveted tulip variety. It was not enough to secure a deal.

As people heard stories of acquaintances making unheard-of profits simply by buying and selling tulip bulbs, they decided to get in on the act – and prices skyrocketed. In 1633, a single bulb of Semper Augustus was already worth an astonishing 5,500 guilders. By the first month of 1637, this had almost doubled, to 10,000 guilders. One historian put this sum in context: “It was enough to feed, clothe and house a whole Dutch family for half a lifetime.”

Needless to say, the prices were not an accurate reflection of the value of a tulip bulb. As it happens in many speculative bubbles, some prudent people decided to sell and take their profits. A domino effect of progressively lower and lower prices took place as everyone tried to sell while few were buying. The price quickly fell, causing people to panic and sell regardless of losses. 

Dealers refused to honor contracts and people began to realize they traded their assets for a tulip bulb; panic set in throughout the land. The government attempted to step in and halt the crash, but then the market plunged even lower, making such restitution impossible. No one emerged unscathed from the crash. Even the people who had locked in their profit by getting out early suffered under the following country-wide depression.

It is now known that "breaking” or multi-color pattern effect is due to the bulbs being infected with a type of tulip-specific virus, known as the “Tulip Breaking Virus” so-called because it "breaks" the one petal color into two or more.