Tulip Mania Spawned Greater Fools

Many historians believe that the story of Tulip Mania is as inflated as the price of its bulbs. But it continues to be told to this day. How did the facts become as brightly colored as tulips themselves? And how did Tulip Mania become one of the first fake stories to go viral in 1841, a mere two hundred years after it occurred?

During the Tulip Mania craze of 1637, people coveted bulbs from the brilliantly colored flowers recently imported to Holland. Prices soared with increased demand. Bulbs were traded on speculation. As the story goes, when reality set in and prices crashed, fortunes were lost and lives destroyed. The story was embellished and retold until Tulip Mania became the cautionary tale of Speculative Market Bubbles.

For The Love Of Tulips: A Recap

What was all the fuss about? Tulips were rare beauties from exotic lands. And their bold colors set them apart from other flowers. As in Victorian times, rare plants from exotic locales were high on the “must have” list.

According to Anne Goldgar, author and Professor of Early Modern History at King’s College London, the desire for tulips was not irrational. Goldgar writes in her book Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age.

“…this fragile and changeable bloom represented novelty, unpredictability, excitement—a splash of the exotic east, a collector’s item for the curious and the wealthy, rather than a simple and unpretentious flower in a jug on the kitchen table.”

It was a luxury product in a country that was in its Golden Age of wealth and trade networks. More people than ever before could afford luxury items including paintings and exotic seashells.

“…tulips were seen as beautiful, exotic and redolent of the good taste and learning displayed by well-educated members of the merchant class.” Anne Goldgar

Horticulturists produced scores of varieties in brilliant red, yellow, pink or white. At one point, some tulips erupted from their solid color into blooms with slashes or swirls of contrasting hues.

Variegated patterns were the result of the Tulip Breaking virus that attacked some bulbs. These blazing beauties were coveted for their rare qualities. Tragically, the virus caused blooms to wilt early and ultimately to kill the bulbs.

The Greater Fool Theory

The Dutch developed many financial techniques still in use today. Tulips bloomed for a short period in April and May, then were uprooted and sold during their dormant phase between June and September. They were bought and sold on speculation as durable goods.

Professional traders (stock jobbers) joined the fun and everyone appeared to be making profits off the bulbs. Yes, the prices were outrageous, but no one worried. There was always a “great fool” who would pay more.

According to Investopedia.com:

“People began buying tulips with leverage – using margined derivatives contracts to buy more than they could afford.”

By late 1638 the prices returned to where they started.

“A large part of this rapid decline was driven by the fact that people had purchased bulbs on credit, hoping to repay their loans when they sold their bulbs for a profit. But once prices started their decline, holders were forced to liquidate – to sell their bulbs at any price and to declare bankruptcy in the process.” Investopedia.com

Is this reminding anyone of the housing bubble of the 2000s?

The Inflated Story Of Tulip Mania

Tulip Mania has become one of the most famous market bubbles of all time. As the story goes, the rare striped bulbs traded for many times the average person’s annual salary. A 12-acre parcel of land was paid for one rare bulb. Amateur speculators supposedly sold their farms and all their possessions to make big profits off a sure thing. Even the poorest people got in on the action. But when prices toppled, so did lives. Fortunes were lost. Suicide was rampant.

While the truth of Tulip Mania was greatly exaggerated, Goldgar writes that it was nonetheless traumatic to the Dutch. Yes, a few people paid exorbitant prices for a few rare bulbs. And some lost a lot of money. But the story became a moral lesson about greed and a practical one about chasing overpriced investments.

How Did Tulip Mania Go Viral?

Tulip Mania had everything. It was a juicy tale of greed, new wealth, fools, thieves, con artists and terrible losses. The story gained momentum until the facts became distorted like a message in a game of “post office.” This was due in large part to a range of media.

After the crash in 1637, satirical songs barbing the Greater Fools who were blinded by the blaze of tulips became popular.   Three anonymous pamphlets that read like propaganda against speculation circulated.

In 1797, the German author Johann Beckmann wrote A History of Inventions, Discoveries and Origins. His work was largely taken from the earlier pamphlets. A huge success, it was later translated into English.

Enter Charles Mackay

Then in 1841 Charles Mackay published Extraordinary Popular Delusions and the Madness of Crowds. The study of crowd psychology was published in three volumes: “National Delusions”, “Peculiar Follies”, and “Philosophical Delusions”.

Mackay, a Scottish poet, journalist, author, and songwriter wrote in a sensational style. Although his work was largely taken from Beckmann’s, it was a crowd pleaser. Mackay also included many hilarious anecdotes that he likely fabricated.

“A golden bait hung temptingly out before the people, and one after the other, they rushed to the tulip-marts, like flies around a honey-pot … Nobles, citizens, farmers, mechanics, sea-men, footmen, maid-servants, even chimney-sweeps and old clothes-women, dabbled in tulips. People of all grades converted their property into cash, and invested it in flowers.

Houses and lands were offered for sale at ruinously low prices, or assigned in payment of bargains made at the tulip-mart … In the smaller towns, where there was no exchange, the principal tavern was usually selected as the “show-place,” where high and low traded in tulips, and confirmed their bargains over sumptuous entertainments. These dinners were sometimes attended by two or three hundred persons, and large vases of tulips, in full bloom, were placed at regular intervals upon the tables and sideboards for their gratification during the repast.” Charles Mackay, 1841

And so the story went viral two hundred years after it occurred in Holland. To this day, Mackay’s stories are repeated on the Internet and social media.

Paintings Contributed To Tulip Mania

Jean-Léon Gérôme, painted The Tulip Folly in 1882. In it, an aristocratic owner defends his tulips from government soldiers. They are trampling his tulips to limit supply, thus keeping prices from dropping further.

It was also a commentary on the crash that year of the Paris bourse (stock exchange). That financial crisis triggered a recession in France that lasted until the end of the decade.

Victorian Secret: After the crisis some major buyers of Impressionist paintings were no longer able to subsidize its artists.  Paul Gauguin, who had been a successful stockbroker decided to devote himself to painting full-time thanks to his reduced commissions.

Why Do We Believe Fake Stories?

Even smart people believe fake stories.  As with Tulip Mania, the sheer scope of repetition created momentum and that engendered believability.  Pictures, graphs and anecdotes make false stories more credible. Mackay used all of these in his book.

The story of Tulip Mania was not just a cautionary tale against economic bubbles. It was also the poster child for fake news and human gullibility. With the Internet,  eye-popping headlines  invite sharing, much like Mackay created in 1841.

In Harvard Summer School’s  4 Tips For Spotting a Fake News Story author Christina Nagler writes:

“Another contributing factor according to Pew Research is confirmation bias. People are more likely to accept information that confirms their beliefs and dismiss information that does not.” 

The tips are worth a quick read, particularly in these days of Covid 19. Remember that false stories with juicy headlines are rewarded in our pay-per-click media.
The article offers a blueprint with quick tips for following each of its four tips.
1. Vet The Publisher’s Credibility.
2. Pay attention to quality and timeliness.
3. Check the sources and citations. (links provided)
4. Ask the pros.
Fact checking websites include:
Stay safe and don’t buy any overpriced tulip bulbs.
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