At the beginning of the 17th century, the tulip was not just a flower but a stunning symbol of social status in the Netherlands.
The phenomenon known as 'Tulipmania' has changed the view of this flower from a mere decoration to an extraordinary investment asset.
Who would have thought that one tulip bulb could create a frenzy that plunged many into the world of commerce?
Dive into the economic bubble created by a single tulip bulb and how it managed to shake up society and the economy of the time!
The beginning of Tulipmania
Tulips were first introduced in the Netherlands in 1590 and became a symbol of luxury among aristocrats.
At that time, tulips were not only appreciated for their beauty, but also became a form of profitable investment, especially tulips of the "Semper Augustus" type.
By the late 1630s, tulips had become the most sought-after commodity on the market.
At its peak, the price of a single tulip bulb can reach an absurd value, where some are sold for more than a luxury house.
The height of Tulipmania
Investors from all walks of life rush to buy tulips through the 'college' system where traders gather to exchange tulips, believing that the price will continue to rise.
The market became increasingly high with investments and speculations that were not based on a solid economic foundation causing tulip trading to continue to switch systems to futures contracts.
Many people, including farmers and laborers, involved in the tulip business do not have any knowledge about the flower.
This is because they are consumed by the rumor that anyone who owns a tulip bulb is considered to have the potential to become rich overnight.
The year 1623 saw the price of one Semper Augustus tulip bulb soar to 1,000 guilders (around RM 2,398.00), and by 1625, the price had reached 3,000 guilders (around RM 7,194.00)!
In 1636, the market for tulips reached its peak with prices becoming out of control and speculation of their price increase becoming a common practice.
Bubble Tulip Burst!
Unbeknownst to many, disaster was approaching and in early 1637, the price of tulips began to decline.
Investors panicked and rushed to sell their tulips, causing demand to plummet and tulip prices to crash.
The rice has become porridge! The tulip market suffered a sharp fall, with prices plummeting by up to 95% overnight.
The sudden drop in prices awakened the realization that investing in tulips was not based on true value, causing many investors to suffer huge losses.
Factors That Cause Tulipmania
– Excessive Speculation
During the 1630s, the price of tulip bulbs skyrocketed due to uncontrolled speculation.
Investors buy tulips not for agricultural purposes but to resell in the hope of making a large profit.
– Social Influence
Luxurious lifestyles and social status encourage people to invest without understanding the risks involved.
– Demand Reduction
Once prices start to fall, investor interest declines, causing a precipitous fall.
This drop in demand coupled with an oversupply from investors looking to sell, caused the price of tulip bulbs to fall drastically.
Tulipmania effect
Tulipmania ended with a major economic crisis, and most investors suffered severe losses.
Many who expect to become rich overnight end up facing a bitter reality.
While some investors survived, many did not recover from this crisis.
This phenomenon is considered one of the classic examples of speculation in financial history, teaching future generations about the risks of investments that are not based on solid foundations.
In addition to this Tulipmania, there are actually many other 'black swan' events that have shaken the world and had lasting negative effects such as The Great Depression 1929, The Dotcom Bubble and the Lehmann Brothers crisis.
However, economic crises that have occurred and remain in the folds of history can still provide lessons and lessons for the future.
