It all began with a simple, yet beautiful, flower named tulip. As all crisis need to start somewhere, this one happened in 17th century Netherlands, at the start of the Dutch golden age.
It seems hard to believe that a single flower could be worth as much as a house, especially after we passed subprime mortgage crisis and the housing bubble which seemed like the biggest speculative bubble ever. History will certainly put it in top 10 crisis list, but tulip mania took the madness of speculation far beyond.
The tulip was first cultivated by the Turks around 1000 AD, originally being an ordinary wild flower in Central Asia. It is generally thought that the flower came to Netherlands around 1593, with the founding of Hortus botanicus of Leiden, one of the oldest botanical gardens in the world.
The situation in which demand increases, supply is stable and slow rising, lots of money available must ultimately lead to greed and speculation. And Netherlands witnessed a true crisis over a beautiful flower.
Dutch Golden Age
Netherlands in the early 17th century entered a Golden Age, as resources that had earlier gone toward fighting for independence from Spain could now flow into commerce, science, arts and architecture. Connections with eastern countries where strong since Amsterdam merchants were at the center of the lucrative East Indies trade. With only one voyage merchants could yield profits of 400%, which they then displayed by constructing large estates surrounded by flower gardens.
Tulips were of course one of the main attractions, mostly because of their colorful nature that differed them from the traditional European flowers. The tulip quickly became a luxury item and even a status symbol, which will eventually lead into biggest bubble of that era.
The flower itself was classified in several groups: one-coloured tulips of red, yellow, or white were known as Couleren, but it was the multicolored Rosen (red or pink on white background), Violetten (purple or lilac on white background), and, to a lesser extent, the Bizarden (red, brown or purple on yellow background) that were the most popular. Increased popularity had given florists idea of making more money with new varieties, so in the years that followed many more flashy named tulips arose.