Short Stuff: Tulipmania | STUFF YOU SHOULD KNOW

[Music]. Hey and welcome to the short stuff. I'm. Josh and there's Chuck and Jerry sitting. in for Dave and this is Short Stuff. about Tulip Mania. That's right. Uh Tulip Mania was perhaps. the first um financial bubble to happen. and then burst. And we should probably. talk a little bit about what an economic. bubble is, don't you think? Yeah. It's. where the price of a good or an asset or.

something like that, let's just say. item, sure, goes skyhigh, way, way, way. beyond any reasonable value that it. should have. And that's because of. exuberant trading. And the more. exuberant the trading is, the more. people get sucked in by it. And they. want to make this some money, too. So. more people start investing and the. prices keeps going higher and higher and. higher. That's the first part of the. bubble. There's another less happy side. of the bubble, too. That's right. Uh. because as anyone who's ever been to a.

bubble rave or a um played bubbles with. your kids or just adult friends who. enjoy bubbling, that bubble's going to. burst. They all will eventually. And. that's what happens with an economic. bubble, too. The price will drop um. usually pretty quickly. And a lot of. people start selling off very quickly, and those who get out early enough can. usually avoid it. But a every single. time someone is going to be left holding. that asset. Yeah. Uh that is all of a. sudden not worth much of anything. And a.

lot of times the people have invested. their entire life savings in this stuff. A lot of times they bought this stuff on. credit and all of a sudden this thing. isn't worth that much money and they're. in real real financial trouble. Yeah. It's a bad scene. Yeah. And so, like you. said, all the way back in the 17th. century, uh, people consider the first. economic bubble to have surrounded. tulips and tulip bulbs in Holland. That's right. And when you said tulip. mania, Yeah. that's really what it was. called. You weren't just being cheeky.

No, that's what that's what it's. referred to, I'm sure, among economists, uh, among historians, among the Dutch, among podcasters. It's called Tulip. Mania. That wasn't just me being funny. So, a little bit about tulips. Uh native. to places like Kazakhstan and Eastern. Europe and the Himalayas. Uh they don't. look like the tulips uh in their. original form that we think of today. Uh. but they have been cultivated over the. years uh and you know crossbred to where.

they look like they look like tulips. now. These these beautiful we even got. tulips popping up here in Atlanta. already this spring. Mhm. And uh they're. they're lovely. They're grown from bulbs. and they're um I don't know about how. easy or hard it is but um they like I. said are crossbreed to create new and. exciting varieties and colors. Yeah. Um. so tulips first arrived in Holland. around 1600. Uh the Dutch East India. Company was moving spices and exotic. goods from the east um to Europe,

Holland in particular. and tulips. arrived and for the first couple decades. um they were you know if you were a. plant enthusiast you probably had a. tulip in your collection um if you were. very very rich and just wanted to show. off how cutting edge you were you might. have some tulips in your garden but they. weren't a big deal until 1634 and the. reason they became a big deal almost. overnight was because those same upper. classes and nobility in Holland decided.

that tulips were now a status symbol and. that if you didn't have tulips growing. in your garden and you were a member of. the aristocracy or nobility, you were a. total loser with a capital L. That's. right. So, in this case, you had. economically speaking, you had a a big-. time demand all of a sudden, but not. only was it a big-time demand, it was a. big- time demand of people that had a. lot of money. So, the price went through. the roof very, very quickly. uh a bulb,

a single bulb, one tulip bulb, uh would. fetch 2,000 florin. And just to put it. into perspective, what you could buy. back then for 2,000 florin, 16,000. pounds of cheese, 250 tons of beer, uh a. couple hundred sheep, or maybe 16 grown. oxen. Yeah. And they were paying prices. in today's dollars. Thank Thank you. Investopedia for doing this weird. translation. Uh but in today's dollars.

for a single tulip bulb they were paying. 50 grand, 150 grand, even sometimes for. the rarest varieties up to a million. dollars for a single bulb. Yeah. That 50. you 150 grand. That was like dayto-day. stuff, right? That's what a single tulip. bulb would go for. Bulb. It was nuts. Even at the time, there were people who. were watching this and they're like, "This is crazy. They're tulips for God's. sake." Yeah. They're writing out that a. giant check with a a feathered pen and.

they're just like, I can't believe I'm. paying this amount of money for a tulip. Exactly. Um, I say we take a break and. come back and talk some more about tulip. mania. [Music].

Okay, Chuck. So, we were just talking. about how crazy expensive a single tulip. bulb was in Holland in the 1630s. Single. tulip bulbs, right? So, some people. among the wealthy would use like. significant portions of their fortune, of their wealth to buy tulips and just. grow them. They weren't reselling them. They weren't doing anything. They were. buying tulips and growing them. They. were spending half of their net worth to.

buy tulips just to show off, right? Yeah. At some point, people started. saying like, I think that if I start. buying tulips and then selling them for. a higher price, I could really make some. money. And as a matter of fact, I can. start speculating where I will go into. futures contracts with people and say, "Hey, I'll sell you X number of tulips. uh in three weeks for X number of. dollars because I'm betting that the. price is going to go down, but you're. betting that the price is going to go. up. Let's see who wins." And speculation.

is one of the main drivers essentially. of an economic bubble. Like it's crazy. that the single bulbs were going for. that. But once people started. speculating and and creating like um. instruments and futures contracts based. on that crazy high price, that's when it. really started to get troublesome. Yeah, for sure. Uh they were actually sold on. the Dutch stock exchange. Uh and these. were, you know, some wealthy investors, but everybody got in on the gang. like.

the gang, the game, um just regular. middle workingass people, uh even like. um people of of the lower classes, they. started cashing in everything they. could, selling their houses in some. cases, selling their the tools of their. trade that they were previously making. money on to invest in these tulips. Uh. and you know what's going to happen is. that eventually is going to burst. And. it did so less than two years after this. frenzied investment stuff started in.

1636. Yeah. Um the bubble burst because some. people like we said earlier that there. were some people who were like this is. crazy. And even some speculators and. people who were invested in tulips were. like this is not going to last much. longer. I'm going to get out. And as. more people started to decide to get out. uh you can trigger a panic. And if you. trigger a panic, all of a sudden the. bubble bursts and the the price just. drops precipitously. Um, and that's what happened with the.

tulip mania bubble. A bunch of people. who had large stocks of tulip bulbs when. the price dropped almost overnight were. were ruined financially. They had, say, hundreds of thousands of dollars worth. of tulips that they'd paid hundreds of. thousands of dollars for that were now. worth hundreds of dollars. And it was a. bad jam for anybody who was caught with. tulip bulbs when the bubble burst. Yeah. I mean, it it affected the wealthy um. obviously in some cases, but it also. affected a lot of those people that were.

looking to get wealthy and did. sometimes, you know, get make a lot of. money during this, you know, less than. two-year period. But, you know, the like. I said, some people sold their homes and. all of a sudden they don't have a home. and they're stuck with all these tulips. Yeah. Uh the trades people who, you. know, sold their tools because they were. like, "Hey, I'm a I'm in the tulip game. now. I don't need these uh iron working. skills or tools. Uh all of a sudden, they couldn't even go back to that trade. because they didn't have the stuff they. needed to do it. And the people who. bought those future contracts were the.

people that were really really in. trouble. Right. Yeah. Because again, you're saying, I will buy a a thousand. tulip bulbs in four weeks at, you know, a million dollars. And when the bubble. burst and those tulip the the thousand. bulbs were now worth $1,000 and you're. on the hook to pay a million dollars for. them. Yeah. Those speculators were like, "I'm not I'm sorry. I'm not doing this.". Or they can't. Yeah. They might not have. been able to any longer. But the.

suppliers who had these tulip bulbs and. were technically owed a million dollars. regardless of what the tulip bulbs were. um were worth, they won their bet. um. but they they still the the um buyers. would not pay the suppliers and that's. what really created this huge financial. crisis and it it got bad enough at first. the Dutch governments of the big cities. and I think the the monarchy did not get. involved. They did not want to get. involved. The courts were like we're not.

going to hear any cases because these. are bets as far as the law is concerned. and a bet isn't legally binding. But it was so bad. The Dutch economy was. in such tatters because so many people. had gotten into tulips, Chuck, that they. just like you said, trades people just. sold their tools. People sold their. houses. The regular economy that was. built on that kind of work and stuff. like that. It it sagged it. It was. unmaintained during this tulip mania. So, it was a big problem that the Dutch.

had. So, finally, some of the uh. higherups got involved and tried to. figure this out. Well, they tried to. Yeah. Not not to much effect, but they. the courts finally said, "All right, we. have to do something here. So, why don't. we work out a deal where the traders pay. 10% of the contracts face value?" But. nobody was happy with that because the. suppliers were still losing tons of. money. The buyers still uh were in bad. shape because the value of those tulips. just, you know, plummeted. Yeah. And 10%. of a future contract was a lot more than.

they were worth now. And so, you know, nobody really won in the end. And it it. wrecked the Dutch economy for, you know, it took a couple of decades to sort of. naturally heal itself back to where it. was. Yeah. That's what the the Dutch. government ultimately decided to do is. nothing and it just had to mend itself. naturally as people got back to work and. people sold their tulip bulbs for way. less. But they did sell their tulip. bulbs because the Dutch were still and.

are still kind of crazy for tulips. Oh. yeah, they I read that they still pay. higher prices than other countries for. tulip bulbs because people just know. that the Dutch are crazy for tulips and. they'll pay it. And I guess every about. this time of year, every year the Dutch. countryside just explodes in color. Yeah, it's gorgeous. And uh I can also. recommend a classic Conan O'Brien bit uh. when he used to go on location and do. remote stuff. Mhm. Uh he has a very very.

funny one um from I believe his like. first iteration of his show where he and. Andy went to Amsterdam and went uh out. with a camera to the tulip farms and the. tulip markets and it was very very. funny. I'm sure you can still find it. Thanks, man. Thanks for the. recommendation. You got anything else? I have no other. recommendations other than plant tulip. bulbs. They're they're gorgeous. Yeah. And beware economic bubbles. Yeah, that. too. Short stuff is out.

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