Market Mania: How Obsession With Tulips Caused An Economic Crash

Market Mania means fast money. Several events in history are considered market bubbles. Now, what does that means? There are times when prices of items increase rapidly and drop drastically after a specific time, leaving the market crash. One of the historical episodes was the 'Tulip Mania' that Dutch witnessed in 1637. The event is quoted as an example of market bubbles and considered the most significant crashes in history.

Background

Carolus Clausius, a skilled botanist, grew the tulip flower for the first time in the Netherlands. Due to the rarity and their fragile nature, they grabbed the attention of the Dutch. It became a status symbol for the elite class in Dutch. In no time, many people started cultivating the Tulip flower and earned huge profits. The rich needed to have Tulips; it became a prevailing fashion among the Dutch families.

The Tulip Mania

It was the Dutch's golden period when it was considered the wealthiest country with the highest per capita income. The Tulip Mania emerged in this prosperous era of the Dutch. The Tulips' demand grew immensely; seeing this, the traders and cultivators increased their business investments. In 1937 the prices were skyrocketing high. That was the peak time when the profits made by Tulip cultivation and trading were dramatically high.

Many people took part in trade and made money by keeping some of the rare Tulip bulbs. That was because people in Netherland were obsessed with the Tulips, and they were ready to purchase the flowers at any cost. But this was for a short period and ended soon. The speed with which it was hiked, with more incredible speed than the Tulip market, crashed.

Tulip Mania Crash

Now let us see how the obsession with the Tulips caused a crash? In the same year, in 1937, the prices reduced drastically, which was not expected, and the economic bubble burst. People’s love for Tulips faded away, and there were lots of flowers that no one wants to buy. The traders faced an enormous economic crisis that they had never imagined. The reasons behind this collapse are not very authentic and transparent because of the lack of available data. But the two primary reasons that are considered responsible for this are the unrealistic high prices and weak financial regulations.

Conclusion

The sudden increase in demand motivated the traders to increase the Tulips trade, and when they shifted their finance for doing this, the demand decreased suddenly, which became the reason for the crisis. Too many traders were a significant loss, but it did not impact the country's economy. The people for some time went crazy for the beautiful and newly introduced flowers, and they played high prices for keeping them. The prices increased rapidly, and the people's interest also lost as fast as it got developed, which resulted.

Overall, the country was economically quite strong, and the Tulip Mania could not cause a significant economic impact on the country. But to date, it is considered the first economic bubble in history, and a lesson can get learned from this event.