Food for Thought

The Tulip Bubble

By Felix Dodds

I had always wondered where economic bubbles come from.  So it was very interesting to read in the Economist the other day that they actually originated in the Netherlands. It seems that our present financial system was actually based on one developed by the Netherlands and then copied by the UK and expanded through their empire. It does seems appropriate to be discussing this with a Dutch Chair of the CSD and with us in New Amsterdam in the province of New Netherlands.  It seems that tulips were introduced into Holland in the mid-16th century from the Ottoman Empire. Very soon afterwards there was ‘tulip mania’ leading to the first economic bubble.  At its height tulip contracts sold for 10 times the annual income of skilled craftsman. Speculation on the price going up saw masses of people buying or becoming involved in ‘bulb futures’ helped to create a tulip bubble. It is alleged that a single bulb of the Viceroy  type could be traded for: four fat oxen, two right fat swine, twelve fat sheep, two hogsheads of wine (my favourite), two lasts of wheat, four lasts of rye, four tuns of beer, two tones of butter, 1.000lbs of cheese, a suit of clothes, a silver drinking cup and a complete bed. Now that is a lot to take into the local bulb shop. Eventually this ‘tulip bubble burst when  the demand collapsed ’ People were left holding bulbs which had cost them 10 times the amount the market was now selling them for. The Tulip bubble was the first but as we know history is littered with other example of how the economic system which we have built doesn’t work. If you are interested then have a look at the other some of the other bubbles..... Mississippi Company (1720), the Florida speculation building bubble (1926), the 1920s American economic bubble, the dot com bubble, the Asian Financial Crisis and the real estate bubble we are experiencing now. There are of course the less well know bubbles such as the sports card bubble, the comic book bubble (one I cared  lot about) and the TY beanie babies bubble which didn’t hit so many people. The 17^th century was a difficult time for our Dutch friends not only the tulip crash of 1637 but they also annexed by the British in 1664 and became New YorkSo perhaps the time has really come for a serious look at the financial mechanisms that we seem to have created out of the Dutch model. A green financial system might look a lot different but how can we create the new model while working within the present globalised economic system? Should this be one of the challenges for Rio+20? If not then what will be the next bubble?