WEBVTT - Short Stuff: Tulipmania

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<v Speaker 1>Hey, and welcome to the short Stuff. I'm Josh and

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<v Speaker 1>there's Chuck and Jerry sitting in for a Dave. And

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<v Speaker 1>this is short stuff about tulip mania.

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<v Speaker 2>That's right. Tulip Mania was perhaps the first financial bubble

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<v Speaker 2>to happen and then burst. And we should probably talk

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<v Speaker 2>a little bit about what an economic bubble is, don't

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<v Speaker 2>you think.

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<v Speaker 1>Yeah, it's where the price of a good or an

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<v Speaker 1>asset or something like that. Let's just say item sure

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<v Speaker 1>goes sky high way way way beyond any reasonable value

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<v Speaker 1>that it should have, and it's because of exuberant trading.

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<v Speaker 1>And the more exuberant the trading is, the more people

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<v Speaker 1>get sucked in by it, and they want to make

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<v Speaker 1>some money too, so more people start investing, and the

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<v Speaker 1>prices keep going higher and higher and higher. That's the

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<v Speaker 1>first part of the bubble. There's another less happy side

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<v Speaker 1>of the bubble too.

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<v Speaker 2>That's right, because as anyone who's ever been to a

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<v Speaker 2>bubble rave or a played bubbles with your kids or

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<v Speaker 2>just adult friends who enjoy bubbling, that bubble's going to burst.

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<v Speaker 2>They all will eventually, And that's what happens with an

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<v Speaker 2>economic bubble too. The price will drop usually pretty quickly,

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<v Speaker 2>and a lot of people start selling off very quickly,

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<v Speaker 2>and those who get out early enough can usually avoid it.

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<v Speaker 2>But every single time, someone is going to be left

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<v Speaker 2>holding that asset that is all of a sudden not

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<v Speaker 2>worth much of anything. And a lot of times the

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<v Speaker 2>people have invested their entire life savings in this stuff.

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<v Speaker 2>A lot of times they've bought this stuff on credit,

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<v Speaker 2>and all of a sudden, this thing isn't worth that

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<v Speaker 2>much money and they're in real, real financial trouble.

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<v Speaker 1>Yeah, it's a bad scene.

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<v Speaker 2>Yeah.

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<v Speaker 1>And so, like you said, all the way back in

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<v Speaker 1>the seventeenth century, people consider the first economic bubble to

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<v Speaker 1>have surrounded tulips and tulip bulbs in Holland.

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<v Speaker 2>That's right. And when you said tulip mania, that's really

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<v Speaker 2>what it was called. You weren't just being cheeky.

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<v Speaker 1>No, that's what it's referred to. I'm sure among economists,

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<v Speaker 1>among historians, among the Dutch, among podcasters, it's called tulipmania.

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<v Speaker 1>That wasn't just me being funny.

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<v Speaker 2>So a little bit about tulips native to places like

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<v Speaker 2>Kazakhstan and Eastern Europe and the Himalayas. They don't look

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<v Speaker 2>like the tulips in their original form that we think

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<v Speaker 2>of today, but they've been cultivated over the years and

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<v Speaker 2>you know, cross bread to where they look like they

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<v Speaker 2>look like tulips. Now, these these beautiful we have tulips

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<v Speaker 2>popping up here in Atlanta already this spring and they're lovely.

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<v Speaker 2>They're grown from bulbs and they're I don't know about

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<v Speaker 2>how easy or hard it is, but they, like I said,

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<v Speaker 2>are cross bread to create new and exciting varieties and colors.

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<v Speaker 1>Yeah. So tulips first arrived in Holland around sixteen hundred.

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<v Speaker 1>The Dutch East India Company was moving spices and exotic

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<v Speaker 1>goods from the East to Europe, Holland in particular, and

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<v Speaker 1>tulips arrived. And for the first couple decades they were

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<v Speaker 1>you know, if you were a plant enthusiast, you probably

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<v Speaker 1>had a tulip in your collection. If you were very,

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<v Speaker 1>very rich and just wanted to show off how cutting

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<v Speaker 1>edge you were, you might have some tulips in your garden.

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<v Speaker 1>But they weren't a big deal until sixteen thirty four.

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<v Speaker 1>And the reason they became a big deal almost overnight,

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<v Speaker 1>was because those same upper classes and nobility in Holland

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<v Speaker 1>decided that tulips were now a status symbol, and that

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<v Speaker 1>if you didn't have tulips growing in your garden and

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<v Speaker 1>you were a member of the aristocracy or nobility, you

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<v Speaker 1>were a total loser with a capital A.

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<v Speaker 2>That's right. So in this case you had, economically speaking,

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<v Speaker 2>you had a big time demand all of a sudden.

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<v Speaker 2>But not only was it a big time demand, it

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<v Speaker 2>was a big time demand of people that had a

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<v Speaker 2>lot of money. So the price went through the roof

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<v Speaker 2>very quickly. A bulb, a single bulb, one tulip bulb,

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<v Speaker 2>would fetch two thousand florin, And just to put it

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<v Speaker 2>into perspective of what you could buy back then, for

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<v Speaker 2>two thousand florin, sixteen thousand pounds of cheese, two hundred

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<v Speaker 2>and fifty tons of beer, a couple of hundred sheep,

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<v Speaker 2>or maybe sixteen grown oxen. And they were paying prices

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<v Speaker 2>in today's dollars. Thank you Investipedia for doing this weird translation,

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<v Speaker 2>but in today's dollars for a single tulip bulb, they

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<v Speaker 2>were paying fifty grand, one hundred and fifty grand even

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<v Speaker 2>sometimes for the rarest varieties, up to a million dollars

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<v Speaker 2>for a single bulb.

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<v Speaker 1>Yeah, that fifty you do one hundred and fifty grand.

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<v Speaker 1>That was like day to day stuff, right, that's what

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<v Speaker 1>a single tulip bulb, single bulb. It was nuts. Even

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<v Speaker 1>at the time, there were people who were watching this

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<v Speaker 1>and they're like, this is crazy. They're tulips, for God's sake.

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<v Speaker 2>Yeah, They're riding out a giant check with a feathered

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<v Speaker 2>pen and they're just like, I can't believe I'm paying

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<v Speaker 2>this amount of money.

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<v Speaker 1>For exactly I say, we take a break and come

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<v Speaker 1>back and talk more about tulip mania, Okay, Chuck. So

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<v Speaker 1>we were just talking about how crazy expensive a single

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<v Speaker 1>tulip bulb was in Holland in the sixteen thirties.

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<v Speaker 2>Single tulip bulbs.

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<v Speaker 1>Right, So, some people among the wealthy would use like

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<v Speaker 1>significant portions of their fortune, of their wealth to buy

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<v Speaker 1>tulips and just grow them. They weren't reselling them, they

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<v Speaker 1>weren't doing anything. They were buying tulips and growing them.

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<v Speaker 1>They were spending half of their worth to buy tulips

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<v Speaker 1>just to show off. Right.

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<v Speaker 2>Yeah.

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<v Speaker 1>At some point people started saying, like I think that

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<v Speaker 1>if I start buying tulips and then selling them for

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<v Speaker 1>a higher price, I could really make some money. And

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<v Speaker 1>as a matter of fact, I can start speculating where

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<v Speaker 1>I will go into futures contracts with people and say, hey,

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<v Speaker 1>I'll sell you X number of tulips in three weeks

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<v Speaker 1>for X number of dollars because I'm betting that the

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<v Speaker 1>price is going to go down, but you're betting that

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<v Speaker 1>the price is going to go up. Let's see who wins.

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<v Speaker 1>And speculation is one of the main drivers essentially of

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<v Speaker 1>an economic bubble. Like it's crazy that the single bulbs

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<v Speaker 1>were going for that. But once people started speculating and

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<v Speaker 1>creating like instruments and futures contracts based on that crazy

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<v Speaker 1>high price, that's when it really started to get troublesome.

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<v Speaker 2>Yeah, for sure, they were actually sold on the Dutch

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<v Speaker 2>stock Exchange, and these were, you know, some wealthy investors,

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<v Speaker 2>but everybody got in on the gang, like the gang

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<v Speaker 2>the game, just regular middle working class people, even like

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<v Speaker 2>people of the lower classes. They started cashing in everything

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<v Speaker 2>they could, selling their houses, in some cases, selling the

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<v Speaker 2>tools of their trade that they were previously making money

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<v Speaker 2>on to invest in these tulips. And you know what's

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<v Speaker 2>going to happen is that eventually is going to burst

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<v Speaker 2>and it did so less than two years after this

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<v Speaker 2>frenzied investment stuff started in sixteen thirty six.

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<v Speaker 1>Yeah, the bubble bursts because some people, like we said

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<v Speaker 1>earlier that there were some people who are like, this

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<v Speaker 1>is crazy, and even some speculators and people who are

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<v Speaker 1>invested in tulips were like, this is not going to

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<v Speaker 1>last much longer. I'm going to get out. And as

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<v Speaker 1>more people started to decide to get out, you can

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<v Speaker 1>trigger a panic. And if you trigger a panic, all

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<v Speaker 1>of a sudden, the bubble bursts and the price just

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<v Speaker 1>drops precipitously. And that's what happened with the tulip mania bubble.

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<v Speaker 1>A bunch of people who had large stocks of tulip

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<v Speaker 1>bulbs when the price dropped almost overnight, were ruined financially.

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<v Speaker 1>They had, say, hundreds of thousands of dollars worth of

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<v Speaker 1>tulips that they'd paid hundreds of thousands of dollars for

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<v Speaker 1>that were now worth hundreds of dollars, and it was

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<v Speaker 1>a bad jam for anybody who was caught with tulip

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<v Speaker 1>bulbs when the bubble burst.

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<v Speaker 2>Yeah, I mean it affected the wealthy obviously in some cases,

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<v Speaker 2>but it also affected a lot of those people that

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<v Speaker 2>were looking to get wealthy and did sometimes you know,

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<v Speaker 2>make a lot of money during this you know, less

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<v Speaker 2>than two year period. But you know, like I said,

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<v Speaker 2>some people sold their homes and all of a sudden,

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<v Speaker 2>they don't have a home and they're stuck with all

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<v Speaker 2>these tulips. The trades people who you know sold their

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<v Speaker 2>tools because they were like, hey, I'm in the tulip

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<v Speaker 2>game now I don't need these iron working skills or tools.

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<v Speaker 2>All of a sudden they couldn't even go back to

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<v Speaker 2>that trade because they didn't have the stuff they needed

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<v Speaker 2>to do it. And the people who bought those future

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<v Speaker 2>contracts were the people that were really really in trouble.

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<v Speaker 1>Right, Yeah, because again you're saying, I will buy a

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<v Speaker 1>thousand tulip bulbs in four weeks at you know, a

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<v Speaker 1>million dollars, and when the bubble burst and those tulip

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<v Speaker 1>the thousand bulbs were now worth one thousand dollars and

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<v Speaker 1>you're on the hook to pay a million dollars for them. Yeah,

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<v Speaker 1>those speculators were like I'm not I'm sorry, I'm not

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<v Speaker 1>doing this, or they can't. Yeah, they might not have

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<v Speaker 1>been able to any longer. But the suppliers who had

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<v Speaker 1>these tulip bulbs and were technically owed a million dollars

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<v Speaker 1>regardless of what the tulip bulbs were were worth. They

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<v Speaker 1>won their bet, but they they still the buyers would

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<v Speaker 1>not pay the suppliers, and that's what really created this

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<v Speaker 1>huge financial crisis, and it got bad enough. At first

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<v Speaker 1>the Dutch governments of the big cities and I think

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<v Speaker 1>the monarchy did not get involved. They did not want

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<v Speaker 1>to get involved. The courts were like, we're not going

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<v Speaker 1>to hear any cases because these are bets as far

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<v Speaker 1>as the law is concerned, and a bet isn't legally binding.

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<v Speaker 1>But it was so bad. The Dutch economy was in

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<v Speaker 1>such tatters because so many people had gotten into tulips

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<v Speaker 1>chuck that they just like you said, trades, people just

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<v Speaker 1>sold their tools, people sold their houses. The regular economy

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<v Speaker 1>that was built on that kind of work and stuff

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<v Speaker 1>like that, it sagged. It was unmaintained during this tulip mania.

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<v Speaker 1>So it was a big problem that the Dutch had.

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<v Speaker 1>So finally some of the higher ups got involved and

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<v Speaker 1>tried to figure this out.

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<v Speaker 2>Well, they tried to, yeah, not too much effect, but

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<v Speaker 2>they the courts finally said, all right, we have to

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<v Speaker 2>do something here, So why don't we work out a

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<v Speaker 2>deal where the traders paid ten percent of the contract's

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<v Speaker 2>face value. But nobody was happy with that because the

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<v Speaker 2>suppliers were still losing tons of money. The buyers still

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<v Speaker 2>were in bad shape because the value of those tulips

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<v Speaker 2>just you know, plummeted and ten percent of future contract

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<v Speaker 2>was a lot more than they were worth now. And so,

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<v Speaker 2>you know, nobody really won in the end, and it

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<v Speaker 2>wrecked the Dutch economy for you know, it took a

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<v Speaker 2>couple of decades to sort of naturally heal itself back

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<v Speaker 2>to where it was.

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<v Speaker 1>Yeah, that's what the Dutch government ultimately decided to do,

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<v Speaker 1>is nothing, and it just had to mend itself naturally

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<v Speaker 1>as people got back to work and people sold their

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<v Speaker 1>tulip bulbs for way less. But they did sell their

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<v Speaker 1>tulip bulbs because the Dutch were still and are still

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<v Speaker 1>kind of crazy for tulips. Oh yeah, I read that

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<v Speaker 1>they still pay higher prices than other countries for tulip

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<v Speaker 1>bulbs because people just know that the Dutch are crazy

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<v Speaker 1>for tulips and they'll pay it. And I guess about

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<v Speaker 1>this time of year every year, the Dutch country side

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<v Speaker 1>just explodes in color.

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<v Speaker 2>Yeah, it's gorgeous. And I can also recommend a classic

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<v Speaker 2>Conan O'Brien bitt when he used to go on location

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<v Speaker 2>and do remote stuff. He has a very very funny

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<v Speaker 2>one from I believe his first iteration of his show

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<v Speaker 2>where he and Andy went to Amsterdam and went out

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<v Speaker 2>with the camera to the tulip farms and the tulip markets,

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<v Speaker 2>and it was very very funny.

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<v Speaker 1>I'm sure you can still find out. Thanks. Thanks for

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<v Speaker 1>the recommendation. You got anything else?

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<v Speaker 2>I have no other recommendations other than plant tulip bulbs.

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<v Speaker 2>They're gorgeous.

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<v Speaker 1>Yeah, and beware economic bubbles. Yeah, that too short. Stuff

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<v Speaker 1>is app.

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<v Speaker 2>Stuff you Should Know is a production of iHeartRadio. For

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