An Editorial by Dawoud Kringle
Let’s wind the clocks back to the early 1630s, in Holland. Tulips were considered a status symbol for the elite. By 1634, tulipmania swept through Holland. Rich people held onto them as investments, and rare and unusually-colored tulips became highly prized. According to The Library of Economics and Liberty, “it was deemed a proof of bad taste in any man of fortune to be without a collection of tulips.” The Dutch stock markets even traded the bulbs as a commodity. The value of tulip bulbs became so inflated that a single Semper Augustus tulip bulb was valued at 3,000 florins (adjusted to modern currency exchanges, the equivalent of over $1,100,000).
By the end of 1637, however, Dutch tulip wholesalers found almost no buyers for them and the tulip bubble burst. Within days, the price of tulips plummeted, resulting in a devastating crash of the entire tulip market. The collapse of the tulip trade caused a widespread economic disaster throughout the Dutch economy. Many people lost massive amounts of money by betting on an investment that was doomed to fail from the start.
Status symbols and vanity aside, these 17th Century people invested heavily in tulips for no reason other than that they believed there would always be someone willing to purchase the bulbs from them at a higher price. This practice is built on the gamble that one would not be the last person holding on to the asset when its value collapses.