Comments (6)

• newson

  hmm, those who are interested should consult the blog of 5/26/07, mr french's other article on tulipmania. there are questions raised there that remain unanswered.
  hans-hermann hoppe writes about a fiat money system in "the political economy of monarchy and democracy":
  "There had been attempts to introduce an irredeemable fiat currency. But these fiat money experiments, associated in particular with the Bank of Amsterdam, the Bank of England, and John Law and the Banque Royale of France, had been regional curiosities which ended quickly in financial disasters, such as the collapse of the Dutch "Tulip Mania" in 1637 and the "Mississippi Bubble" and the "South Sea Bubble" in 1720."

  erasmus university has a different slant:
  "Rational gambling
  There is even a rational explanation for a bubble in common tulip bulb prices. From 1635-1637 a bubonic plague epidemic ravaged the Netherlands, killing 10-30 percent of the population in cities such as Amsterdam, Leiden, Haarlem. It appears reasonable that common people regarded tulip speculation in the same way as they do today a million-dollar lottery: an opportunity to become rich instantly and gain the opportunity to escape the drudgery of daily live (i.e. death from the bubonic plague). A "rational gambling" theory suggests that even uncertain projects with negative expected monetary values can be positively priced when one positive outcome is sufficiently extreme to be on an entirely different utility curve (effectively creating a quasi-convex utility function). Trading in common bulbs thus represented such a "rational" gamble in a live-or-die lottery. Of course, the lottery was made possible by the specific market system that excluded the need for capital investment: no margin requirement, no marking to market."

  having read the blog posts, i'm not at all convinced that tulipmania conforms to the abct. the inflation caused by a specie increase will change a market much like a massive oil discovery changes the structure of an economy. absent fiat money or frb, i cannot see the emergence of the abc. i do accept that the free coinage is an inflationary policy.

  Published: November 27, 2008 8:54 PM

• Arend

  Funny to find some very ordinary Dutch words as bloemists and liefhebbers on Mises.org.

  Ontopic: the Dutch Wikipedia page says this (Bablefish translation) "Against 1636 in several places and cities the complete Netherlands tulips on grant was negociated. This stimulated the tulpen trade under all scores of the population, and many people sold their personal properties can come along do to the tulpenhandel. Some speculators, floristen or florists called, enormous profits made. Some traders sold tulip balls who still but just planted will be still planted or that had become; this led to contracts for supply in the future, similar with what we would call present futures. The phenomenon was indicated with windhandel and took place generally in bars, accommodates and tapperijen in smaller places, and followed a dark notation system for determination of the bidding prices. According to a decision of the states of the Netherlands the trade was illegitimate: compliance with the contracts would not be ratified. This legislation did not lead however to declining of the trade."

  Or in other words, seems like the Tulip Mania was indeed some sort of financial security crisis. The decision of the states of the Netherlands can be made intelligible if one assumes the Tulip future contracts are indeed fraudulent (I wouldn't know if this statement is justified from an Austrian/Libertarian perspective).

  If so, one doesn't have to grab the ABCT along this Tulip Mania issue because it would be explained enough by the (failing?) entrepreneurship (fraudulent or not) activities in asset securities in social and economic instable times (due to the plague et al.).

  As such the Tulip Mania and its demise can hardly be called a downswing of the business cycle and/or a major crisis.

  Published: November 28, 2008 9:20 AM

• fundamentalist

  It doesn't appear that tulip mania was a business cycle. It appears to be more like the recent run up and decline in oil prices. I'm not sure why people are so fascinated with the tulip episode. Real business cycles can be found earlier in Venice where gold merchants used fractional banking to expand the money supply and cause a general boom followed by a general collapse.

  Published: November 28, 2008 10:24 AM

• newson

  i think you're right, fundamentalist. as bloggers on the previous piece noted, if tulipmania had been something straight out of the abct mould, you'd expect to have seen distortions in real estate, and long-horizon projects etc. this mania appeared fairly circumscribed.

  gambling is rife in prisons, too, where minds are concentrated on living in the present. the plague have would shortened time-preferences dramatically, one would think.

  Published: November 28, 2008 8:39 PM

• Dick Fox

  The question should not be ABCT but Austrian economics in general. In the absence of government intervention a broader understand of Austrian economics must be applied.

  But this begs the question was there government intervention. I find it interesting that Goldgar mentions the government actions proposing a tulip tax just prior to the crash. Tax policy drive many investment decisions and can have a huge effect when only a consideration. It is also interesting that there were only 400 people involved in the transactions, obviously an elite group.

  It would appear that Goldgar is correct in stating that the elite group were professional collectors. As with all art the sellers, even the most respected (let me reference Joseph Duveen who sold Andrew Mellon most of the art now in the National Gallery in Washington DC) engage in practices that walked the line of propriety. Any valuation of art is subjective and so the seller will always inflate the price. Buyer beware. Mellon learned quickly and often obtained works from Duveen at half his initial asking price.

  Published: November 29, 2008 10:19 AM

• scott

  It is silly that this Tulip crisis is so studied. The market is considerably different among inessential/elastic goods versus universally vital inelastic goods like oil. What peasant was pulling their hair out over the price of tulips? Further, the barriers to entry for new production are few in tulips where oil discovery, extraction, transport, refining, distribution is a far more expensive and prohibitive.

  This is hardly the first time economist fritter energy over supercillious concerns. The current fretting over the deflation fears, in the collapsing commodities speculation bubble ignores the inevitable inflation that will further exacerbate our stagnant economy. Richard Fisher, Dallas Fed Board Rep. has expressed such concerns, yet we can't get an honest discussion of this in the media.

  Published: November 30, 2008 7:55 PM