The Tulip Crisis: The Story Of The Tulip Crisis

The Tulip Crisis The story of the tulip mania goes back to Netherlands in the 1630’s, where the cost of a single tulip could buy: four oxen or twelve sheep or twenty-four tons of wheat or two tons of butter or a thousand pounds of cheese (SOURCE). On the night of February 6th, 1637, in the Menniste Bruyloft, a popular tavern in Amsterdam, was as usual bustling with potential tulip buyers and traders. It was here that the infamous tulip deal between Andries De Busscher and Joost van Cuyck took place. As the story goes, Busscher walked into the tavern and put a pound of Switser bulbs (striped yellow and red tulips) on sale. De Busscher was a regular at Menniste Bruyloft, well known as a connoisseur of tulips and even had a strain of purple

But in 1634, when the French merchants enter the market and the more competitive market began to steadily raise the prices many ordinary middle-class families began to speculate in the tulip market. This is what led to the boom in the tulip price. What happened next was unprecedented, homes, estates, and industries were mortgaged so that bulbs could be bought and then resold at higher prices. These resales would happen over and over again without the bulbs ever leaving the ground. This exchange was the creation of future contracts. A future contract is an agreement of a future exchange, to buy or sell a particular commodity or financial instrument at a predetermined price at a specified time in the future (SOURCE). In the beginning these future contracts were largely unregulated and usually conducted in taverns between the two parties. This meant that the bulbs and money would rarely change hands. The buyer would just have to pay a small tax, typically around 2.5% of the trade and then he could sell that contract on a profit later that day. These future contracts attracted Holland’s richest, they entered lower exchange not because they wanted the flower, but because they saw an opportunity to sell the right to the flower at a higher price than they had paid. This skewed the balance between risk and reward, therefore between 1636 and 1637 the price of the tulip had exponentially