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The Dutch Tulip Mania

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Jess Kim

on 21 March 2013

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Transcript of The Dutch Tulip Mania

Robert Thomas Black, Jess Hyunkyoung Kim Dutch and Tulips Tulips have had a significant role in Dutch history and culture ever since they were introduced to the Netherlands. What is Tulip Mania? As the popularity for tulips grew the price increased The Tulip Price Index Dutch love affair with Tulips occurred during the mid-1600s which led to the tulip bulb bubble called "Tulip Mania" in 1636-1637. * by botanist named Carolus Clusius * Introduced in 1593 * from Constantinople * He planted tulips to research
the plant for medical purposes * However, his neighbor broke into his garden and stole some of his bulbs to make some quick money * and that's how the Dutch bulb trade started! Why Tulips? * The tulip was different from every other flower known to Europe at that time * Exotic, saturated, intense petal color The Dutch Tulip Mania The Madness of Crowds The Dutch economy of the 16th and 17th centuries was very strong Based on the speculation, the price of tulips became extremely inflated The Tulip Bubble * Prices grew to levels that were higher than the value of the tulips * People were buying the tulip bulbs with the intent of flipping them in the future * Buy today at one price, sell tomorrow at a higher price The Tulip Bubble * People began investing more and more of their funds into tulip bulbs * In some cases merchants neglected other products and began to only sell tulip bulbs, as they were able to make more selling a few bulbs than their traditional products * Tulip bulbs began being traded on the Amsterdam Stock Exchange which increased exposure The Crash * In the winter of 1636-1637 the bubble burst * A failed contract from a buyer in Haarlem was attributed to be the initial trigger * At this point sellers began to overwhelm the market and buyers became scarce * Prices dropped to less than 1/100th of their previous price Reaction * This caused severe unrest within Holland * Sellers began refusing contracts * The government attempted intervention by offering 10% of the contracts value * This measure was unsuccessful * Symbol of wealth * Became a luxury item Financial Bubble “a situation in which temporarily high prices are sustained largely by investors’ enthusiasm rather than by consistent estimation of real value” Tulip Mania = Financial Bubble 1. pattern of price changes observed during the tulip craze matches the pattern one would expect for novel luxury goods in limited but gradually growing supply 2. the dramatic increases in tulip prices during the winter of 1636-1637 were due to a shift in market instruments from standard futures contracts to options ''It is impossible to comprehend the tulip mania without understanding just how different tulips were from every other flower in the 17th century,'' Dutch and Tulips * Tulip Festivals * Living symbol of a country! * Largest tulip exporter
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