ABSTRACT
After the NASDAQ/dot-com crash of 2000, business reporters searched for a historical parable to put the disaster in proper perspective. Several settled on Charles Mackay’s account of “tulipomania” in his canonical chronicle of human folly, Extraordinary Popular Delusions and the Madness of Crowds (1841). For those unfamiliar with this work, Mackay recounts the introduction of the tulip to Western Europe in the seventeenth century and how German and Dutch aristocrats became so enamoured of this Turkish import that a “mania” drove the price of the flowers to unbelievable heights. Rare, exotic, and in demand (though essentially useless except as ornamentation), tulips became the foundation for a whole new speculative economy. Mackay reports of one man trading twelve acres of land for a single tulip! Comic stories abounded of unwitting bystanders mistaking a precious tulip bulb for a deformed onion and accidentally eating an investment equal to a year’s wages. By 1636, as tulipomania spread beyond the moneyed classes, even the “lowest dregs” (Mackay’s words) began to speculate in the tulip trade, pooling their money to buy and sell tulip futures on the Dutch stock exchange. Mackay takes this story to its inevitable conclusion: “At last . . . the more prudent began to see that this folly could not last forever. Rich people no longer bought the flowers to keep them in their gardens, but to sell them again at cent per cent profit. It was seen that somebody must lose fearfully in the end. As this conviction spread, prices fell, and never rose again.” 1
