Speaker 1: Hey, and welcome to the short Stuff. I'm Josh and
Speaker 1: there's Chuck and Jerry sitting in for a Dave. And
Speaker 1: this is short stuff about tulip mania.
Speaker 2: That's right. Tulip Mania was perhaps the first financial bubble
Speaker 2: to happen and then burst. And we should probably talk
Speaker 2: a little bit about what an economic bubble is, don't
Speaker 2: you think.
Speaker 1: Yeah, it's where the price of a good or an
Speaker 1: asset or something like that. Let's just say item sure
Speaker 1: goes sky high way way way beyond any reasonable value
Speaker 1: that it should have, and it's because of exuberant trading.
Speaker 1: And the more exuberant the trading is, the more people
Speaker 1: get sucked in by it, and they want to make
Speaker 1: some money too, so more people start investing, and the
Speaker 1: prices keep going higher and higher and higher. That's the
Speaker 1: first part of the bubble. There's another less happy side
Speaker 1: of the bubble too.
Speaker 2: That's right, because as anyone who's ever been to a
Speaker 2: bubble rave or a played bubbles with your kids or
Speaker 2: just adult friends who enjoy bubbling, that bubble's going to burst.
Speaker 2: They all will eventually, And that's what happens with an
Speaker 2: economic bubble too. The price will drop usually pretty quickly,
Speaker 2: and a lot of people start selling off very quickly,
Speaker 2: and those who get out early enough can usually avoid it.
Speaker 2: But every single time, someone is going to be left
Speaker 2: holding that asset that is all of a sudden not
Speaker 2: worth much of anything. And a lot of times the
Speaker 2: people have invested their entire life savings in this stuff.
Speaker 2: A lot of times they've bought this stuff on credit,
Speaker 2: and all of a sudden, this thing isn't worth that
Speaker 2: much money and they're in real, real financial trouble.
Speaker 1: Yeah, it's a bad scene.
Speaker 2: Yeah.
Speaker 1: And so, like you said, all the way back in
Speaker 1: the seventeenth century, people consider the first economic bubble to
Speaker 1: have surrounded tulips and tulip bulbs in Holland.
Speaker 2: That's right. And when you said tulip mania, that's really
Speaker 2: what it was called. You weren't just being cheeky.
Speaker 1: No, that's what it's referred to. I'm sure among economists,
Speaker 1: among historians, among the Dutch, among podcasters, it's called tulipmania.
Speaker 1: That wasn't just me being funny.
Speaker 2: So a little bit about tulips native to places like
Speaker 2: Kazakhstan and Eastern Europe and the Himalayas. They don't look
Speaker 2: like the tulips in their original form that we think
Speaker 2: of today, but they've been cultivated over the years and
Speaker 2: you know, cross bread to where they look like they
Speaker 2: look like tulips. Now, these these beautiful we have tulips
Speaker 2: popping up here in Atlanta already this spring and they're lovely.
Speaker 2: They're grown from bulbs and they're I don't know about
Speaker 2: how easy or hard it is, but they, like I said,
Speaker 2: are cross bread to create new and exciting varieties and colors.
Speaker 1: Yeah. So tulips first arrived in Holland around sixteen hundred.
Speaker 1: The Dutch East India Company was moving spices and exotic
Speaker 1: goods from the East to Europe, Holland in particular, and
Speaker 1: tulips arrived. And for the first couple decades they were
Speaker 1: you know, if you were a plant enthusiast, you probably
Speaker 1: had a tulip in your collection. If you were very,
Speaker 1: very rich and just wanted to show off how cutting
Speaker 1: edge you were, you might have some tulips in your garden.
Speaker 1: But they weren't a big deal until sixteen thirty four.
Speaker 1: And the reason they became a big deal almost overnight,
Speaker 1: was because those same upper classes and nobility in Holland
Speaker 1: decided that tulips were now a status symbol, and that
Speaker 1: if you didn't have tulips growing in your garden and
Speaker 1: you were a member of the aristocracy or nobility, you
Speaker 1: were a total loser with a capital A.
Speaker 2: That's right. So in this case you had, economically speaking,
Speaker 2: you had a big time demand all of a sudden.
Speaker 2: But not only was it a big time demand, it
Speaker 2: was a big time demand of people that had a
Speaker 2: lot of money. So the price went through the roof
Speaker 2: very quickly. A bulb, a single bulb, one tulip bulb,
Speaker 2: would fetch two thousand florin, And just to put it
Speaker 2: into perspective of what you could buy back then, for
Speaker 2: two thousand florin, sixteen thousand pounds of cheese, two hundred
Speaker 2: and fifty tons of beer, a couple of hundred sheep,
Speaker 2: or maybe sixteen grown oxen. And they were paying prices
Speaker 2: in today's dollars. Thank you Investipedia for doing this weird translation,
Speaker 2: but in today's dollars for a single tulip bulb, they
Speaker 2: were paying fifty grand, one hundred and fifty grand even
Speaker 2: sometimes for the rarest varieties, up to a million dollars
Speaker 2: for a single bulb.
Speaker 1: Yeah, that fifty you do one hundred and fifty grand.
Speaker 1: That was like day to day stuff, right, that's what
Speaker 1: a single tulip bulb, single bulb. It was nuts. Even
Speaker 1: at the time, there were people who were watching this
Speaker 1: and they're like, this is crazy. They're tulips, for God's sake.
Speaker 2: Yeah, They're riding out a giant check with a feathered
Speaker 2: pen and they're just like, I can't believe I'm paying
Speaker 2: this amount of money.
Speaker 1: For exactly I say, we take a break and come
Speaker 1: back and talk more about tulip mania, Okay, Chuck. So
Speaker 1: we were just talking about how crazy expensive a single
Speaker 1: tulip bulb was in Holland in the sixteen thirties.
Speaker 2: Single tulip bulbs.
Speaker 1: Right, So, some people among the wealthy would use like
Speaker 1: significant portions of their fortune, of their wealth to buy
Speaker 1: tulips and just grow them. They weren't reselling them, they
Speaker 1: weren't doing anything. They were buying tulips and growing them.
Speaker 1: They were spending half of their worth to buy tulips
Speaker 1: just to show off. Right.
Speaker 2: Yeah.
Speaker 1: At some point people started saying, like I think that
Speaker 1: if I start buying tulips and then selling them for
Speaker 1: a higher price, I could really make some money. And
Speaker 1: as a matter of fact, I can start speculating where
Speaker 1: I will go into futures contracts with people and say, hey,
Speaker 1: I'll sell you X number of tulips in three weeks
Speaker 1: for X number of dollars because I'm betting that the
Speaker 1: price is going to go down, but you're betting that
Speaker 1: the price is going to go up. Let's see who wins.
Speaker 1: And speculation is one of the main drivers essentially of
Speaker 1: an economic bubble. Like it's crazy that the single bulbs
Speaker 1: were going for that. But once people started speculating and
Speaker 1: creating like instruments and futures contracts based on that crazy
Speaker 1: high price, that's when it really started to get troublesome.
Speaker 2: Yeah, for sure, they were actually sold on the Dutch
Speaker 2: stock Exchange, and these were, you know, some wealthy investors,
Speaker 2: but everybody got in on the gang, like the gang
Speaker 2: the game, just regular middle working class people, even like
Speaker 2: people of the lower classes. They started cashing in everything
Speaker 2: they could, selling their houses, in some cases, selling the
Speaker 2: tools of their trade that they were previously making money
Speaker 2: on to invest in these tulips. And you know what's
Speaker 2: going to happen is that eventually is going to burst
Speaker 2: and it did so less than two years after this
Speaker 2: frenzied investment stuff started in sixteen thirty six.
Speaker 1: Yeah, the bubble bursts because some people, like we said
Speaker 1: earlier that there were some people who are like, this
Speaker 1: is crazy, and even some speculators and people who are
Speaker 1: invested in tulips were like, this is not going to
Speaker 1: last much longer. I'm going to get out. And as
Speaker 1: more people started to decide to get out, you can
Speaker 1: trigger a panic. And if you trigger a panic, all
Speaker 1: of a sudden, the bubble bursts and the price just
Speaker 1: drops precipitously. And that's what happened with the tulip mania bubble.
Speaker 1: A bunch of people who had large stocks of tulip
Speaker 1: bulbs when the price dropped almost overnight, were ruined financially.
Speaker 1: They had, say, hundreds of thousands of dollars worth of
Speaker 1: tulips that they'd paid hundreds of thousands of dollars for
Speaker 1: that were now worth hundreds of dollars, and it was
Speaker 1: a bad jam for anybody who was caught with tulip
Speaker 1: bulbs when the bubble burst.
Speaker 2: Yeah, I mean it affected the wealthy obviously in some cases,
Speaker 2: but it also affected a lot of those people that
Speaker 2: were looking to get wealthy and did sometimes you know,
Speaker 2: make a lot of money during this you know, less
Speaker 2: than two year period. But you know, like I said,
Speaker 2: some people sold their homes and all of a sudden,
Speaker 2: they don't have a home and they're stuck with all
Speaker 2: these tulips. The trades people who you know sold their
Speaker 2: tools because they were like, hey, I'm in the tulip
Speaker 2: game now I don't need these iron working skills or tools.
Speaker 2: All of a sudden they couldn't even go back to
Speaker 2: that trade because they didn't have the stuff they needed
Speaker 2: to do it. And the people who bought those future
Speaker 2: contracts were the people that were really really in trouble.
Speaker 1: Right, Yeah, because again you're saying, I will buy a
Speaker 1: thousand tulip bulbs in four weeks at you know, a
Speaker 1: million dollars, and when the bubble burst and those tulip
Speaker 1: the thousand bulbs were now worth one thousand dollars and
Speaker 1: you're on the hook to pay a million dollars for them. Yeah,
Speaker 1: those speculators were like I'm not I'm sorry, I'm not
Speaker 1: doing this, or they can't. Yeah, they might not have
Speaker 1: been able to any longer. But the suppliers who had
Speaker 1: these tulip bulbs and were technically owed a million dollars
Speaker 1: regardless of what the tulip bulbs were were worth. They
Speaker 1: won their bet, but they they still the buyers would
Speaker 1: not pay the suppliers, and that's what really created this
Speaker 1: huge financial crisis, and it got bad enough. At first
Speaker 1: the Dutch governments of the big cities and I think
Speaker 1: the monarchy did not get involved. They did not want
Speaker 1: to get involved. The courts were like, we're not going
Speaker 1: to hear any cases because these are bets as far
Speaker 1: as the law is concerned, and a bet isn't legally binding.
Speaker 1: But it was so bad. The Dutch economy was in
Speaker 1: such tatters because so many people had gotten into tulips
Speaker 1: chuck that they just like you said, trades, people just
Speaker 1: sold their tools, people sold their houses. The regular economy
Speaker 1: that was built on that kind of work and stuff
Speaker 1: like that, it sagged. It was unmaintained during this tulip mania.
Speaker 1: So it was a big problem that the Dutch had.
Speaker 1: So finally some of the higher ups got involved and
Speaker 1: tried to figure this out.
Speaker 2: Well, they tried to, yeah, not too much effect, but
Speaker 2: they the courts finally said, all right, we have to
Speaker 2: do something here, So why don't we work out a
Speaker 2: deal where the traders paid ten percent of the contract's
Speaker 2: face value. But nobody was happy with that because the
Speaker 2: suppliers were still losing tons of money. The buyers still
Speaker 2: were in bad shape because the value of those tulips
Speaker 2: just you know, plummeted and ten percent of future contract
Speaker 2: was a lot more than they were worth now. And so,
Speaker 2: you know, nobody really won in the end, and it
Speaker 2: wrecked the Dutch economy for you know, it took a
Speaker 2: couple of decades to sort of naturally heal itself back
Speaker 2: to where it was.
Speaker 1: Yeah, that's what the Dutch government ultimately decided to do,
Speaker 1: is nothing, and it just had to mend itself naturally
Speaker 1: as people got back to work and people sold their
Speaker 1: tulip bulbs for way less. But they did sell their
Speaker 1: tulip bulbs because the Dutch were still and are still
Speaker 1: kind of crazy for tulips. Oh yeah, I read that
Speaker 1: they still pay higher prices than other countries for tulip
Speaker 1: bulbs because people just know that the Dutch are crazy
Speaker 1: for tulips and they'll pay it. And I guess about
Speaker 1: this time of year every year, the Dutch country side
Speaker 1: just explodes in color.
Speaker 2: Yeah, it's gorgeous. And I can also recommend a classic
Speaker 2: Conan O'Brien bitt when he used to go on location
Speaker 2: and do remote stuff. He has a very very funny
Speaker 2: one from I believe his first iteration of his show
Speaker 2: where he and Andy went to Amsterdam and went out
Speaker 2: with the camera to the tulip farms and the tulip markets,
Speaker 2: and it was very very funny.
Speaker 1: I'm sure you can still find out. Thanks. Thanks for
Speaker 1: the recommendation. You got anything else?
Speaker 2: I have no other recommendations other than plant tulip bulbs.
Speaker 2: They're gorgeous.
Speaker 1: Yeah, and beware economic bubbles. Yeah, that too short. Stuff
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