Revisiting Tulipmania-The Dutch Asset Bubble
Several friends have asked me about what I’ve been doing besides valuing companies. The short answer is reading about financial history. Here is a book review on the dutch asset bubble known as tulipmania. In this new book the author claims that the tulipmania wasn’t as negative as portrayed by other historians. Fortunately, the book reviewer is well versed in financial history and does readers a service of pointing out the authors mistakes. If nothing else, read the book review and notice the similarities between all financial bubbles and investor psychology.
Article Introduction (Via Mises.org)
Modern financial history is a long series of spectacular asset bubbles followed by equally dramatic crashes. Before, during, and after, the question always arises — whether it’s stocks, bonds, real estate, or collateralized debt obligations — what is the cause of such, as it appears in hindsight, folly?
Ultimately, Goldgar’s exhaustive research convinces her that tulipmania was not all that big a deal as an economic event. After all, the Dutch economy wasn’t destroyed after the bust, and despite what some have written, most of those who engaged in the tulip trade lived happily ever after (if they didn’t die from the plague, that is). “Tulipmania has always been more a warning than a historical event,” claims the author.
Goldgar contends that tulipmania was a social and cultural crisis, not a financial one. She isn’t interested in finance and economics, but instead is “interested in print culture, the culture of collecting, and the interaction of society, art and science,” according to the King’s College London website. Thus Goldgar’s Tulipmania is more about Dutch art and society than speculation and price movements.
Article Excerpts (Via Mises.Org)
“Later in Tulipmania, the author further undermines her thesis writing that gambling was a central feature of Dutch culture, and that it “sometimes seemed that the Dutch would make a bet on anything.””
“But these rules did nothing to assuage what were incredibly risky transactions for both buyers and sellers. These bulbs were often in the ground when sold, and the flowers that would spring forth from a certain bulb in the summer one year could not be counted on to look the same the next year.”
“But the Dutch were quite used to futures trading, as a grain market had developed in the previous century and a securities market was also operating.”