By Greg Wright
MBA, CFE, CFP®, CLU, ChFC
Certified Fraud Examiner
Certified Financial Planner™
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| 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.