The Tulip Bulb Bubble

by Don Meyer, Ph.D. | Nov 12, 2011

"What is a cynic? A man who knows the price of everything and the value of nothing."
Oscar Wilde

There is nothing quite so stunning in the springtime than the exquisite tulip... the color, the shape, the timing, the endurance from year to year. I am always amazed how those bold green leaves burst through frost and snow leading the way for the long, stout stem on which the brilliant bloom will eventually sit. 

Years ago I took two bulbs to illustrate the necessity of the cold of winter to break open the shell of the bulb for the life of the flower to eventually burst forth. I mentioned that if I were creating a flower I wouldn't take it through such adversarial conditions to create such beauty. 

Inadvertently, I placed those two bulbs into a plastic bag and set it out of sight on a bedroom shelf. A couple of months later I found them but they were mushy like a ruined onion. 

But tulip bulbs did not always have such marginal value. Although some dispute the accuracy of the story I am about to share, there are some uncanny facts behind it. It is called The Tulip Bulb Bubbleand it took place from 1636-1637 in Holland. 

Although tulips are often synonymous with Holland, they are actually native to central Asia and originally cultivated by the Turks. In the 16th century, the Hapsburg ambassador in Constantinople (new Istanbul) took bulbs home to Vienna. Imperial botanist, Carolus Clusius propagated them. Later, he was appointed director of Botanical Garden in Leiden in the Netherlands, and discovered the tulip thrived in the Dutch climate. The soil was exactly right for bulb growing. 

Initially, only wealthy merchants bought tulips, but rising prices attracted speculators. Bulbs were traded on local market exchanges, forerunners of today's stock markets. By 1634, the tulip fever had spread to the middle class. It didn't take long before dealing in tulips had become widespread. Speculators were not necessarily buying the actual bulb but bought contracts for future deliveries. They also marginalized their purchases, leveraging the amount invested into larger profits. 

Speculators outbid each other. People paid over-the-top for the finest bulbs, which changed hands before they bloomed. At the height of the frenzy the Semper Augustus variety fetched the equivalent of ten years' wages for an average person. The price of the Viceroy bulb held the same value as a canal house. A coach and a team of horses changed hands for 100 bulbs. 

The tulip bubble reached its height in the years 1636-1637. Tulip traders made fortunes. As with all things overpriced, investors began to sell and take their profits. Then one day, a buyer failed to show up and pay for his bulb purchase. Tulips might be losing their favor. The word circulated. Panic spread and, as the story goes, within days tulip bulbs were worth only a fraction of the former price. The tulip bubble had burst. 

Fortunately the Dutch never gave up their love for the tulip. Even today, they continue to supply most of the bulbs in Europe and North America. 

This story is a great reminder of the endless tension between price and value. It's like the story of the little boy who got inside the store and switched around all the price tags on all of the products. The next day the customers could hardly believe their eyes. 

As the years go by, we all find ourselves valuing different things than when we were children or teenagers. There was a time in my life when tricycles, gloves and electric trains were of primary value. We look back at our childhood treasures which today hardly have value except for sentimental reasons. I wonder if there are things I treasure today which will have little or no value tomorrow. 

The Tulip Bulb Bubble is a reminder of how easily that can happen to any of us. 

Think about it.

Dr. Don Meyer is President of 
Valley Forge Christian College, Phoenixville, PA 
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