Tulip Mania Quotes

Science has marched forward. But civilization’s values remain rooted in philosophies, religious traditions, and ethical frameworks devised many centuries ago. Even our economic system, capitalism, is half a millennium old. The first stock exchange opened in 1602 in Amsterdam. By 1637, tulip mania had caused the first speculation bubble and crash. And not a lot has changed. Virtually every business stills uses the double-entry bookkeeping and accounting adopted in thirteenth –century Venice. So our daily dealings are still heavily influenced by ideas that were firmly set before anyone knew the world was round. In many ways, they reflect how we understood the world when we didn’t understand the world at all.

The discovery of this strange society was a curiously refreshing thing; to realize that there were ten new trades in the world was like looking at the first ship or the first plough. It made a man feel what he should feel, that he was still in the childhood of the world. That I should have come at last upon so singular a body was, I may say without vanity, not altogether singular, for I have a mania for belonging to as many societies as possible: I may be said to collect clubs, and I have accumulated a vast and fantastic variety of specimens ever since, in my audacious youth, I collected the Athenaeum. At some future day, perhaps, I may tell tales of some of the other bodies to which I have belonged. I will recount the doing's of the Dead Man's Shoes Society (that superficially immoral, but darkly justifiable communion); I will explain the curious origin of the Cat and Christian, the name of which has been so shamefully misinterpreted; and the world shall know at last why the Institute of Typewriters coalesced with the Red Tulip League. Of the Ten Teacups, of course I dare not say a word.

Most researchers tried to solve the fat tail problem by studying the behavior of individual traders. Johnson, instead, looked at clusters. He asked what would happen if we assumed traders acted in cliques: small groups whose members all behave the same way, that is, they make the same buy or sell decisions. (The evidence for groupthink in markets, from tulip mania to the internet bubble, is strong.) The clusters need not be permanent

Most researchers tried to solve the fat tail problem by studying the behavior of individual traders. Johnson, instead, looked at clusters. He asked what would happen if we assumed traders acted in cliques: small groups whose members all behave the same way, that is, they make the same buy or sell decisions. (The evidence for groupthink in markets, from tulip mania to the internet bubble, is strong.) The clusters need not be permanent. Just like cliques in high school, members come and go, trading cliques form and dissolve, they merge with other cliques or split into two.

Bulls don't read. Bears read financial history. As markets fall to bits, the bears dust off the Dutch tulip mania of 1637, the Banque Royale of 1719-20, the railway speculation of the 1840s, the great crash of 1929.

When enough people share a short-lived delusion, vast sums of money can be acquired overnight. The ‘tulip mania’ in Holland in the mid-seventeenth century was such a time. Tulips had been imported into Holland for forty years before the madness hit. By 1635, a single tulip bulb was swapped for a collection of valuable articles, which included the following: four tons of wheat eight tons of rye a bed four oxen eight pigs a suit of clothes two caskets of wine four tonnes of beer two tons of butter one thousand pounds of cheese a silver drinking cup The current value of the above would be $50,000 or more. And this was for a single tulip bulb! Fortunes were made or lost, especially the latter, when the music stopped. Within a few years, a tulip bulb was worth less than a dollar in today’s money. Here is the wonder of collective short-term delusion writ large.

A boom-and-bust pattern has been well chronicled since the publication of Extraordinary Popular Delusions and the Madness of Crowds in 1841. In it, Scottish author Charles Mackay probed the human tendency to run amok in pursuit of quick profits, dating back to a mania for tulip bulbs as expensive as houses in seventeenth-century Holland.

As Ivar watched the Americans enter a period of buying mania, he saw a new source of funds. Ivar had studied financial history and was aware of infamous periods of mania and later panic, such as the South Sea Bubble of 1720 and the infamous rise and collapse of Dutch tulip bulb trading in 1637.20 In those cases, men became rich as they rode the wave of investors speculating on risky ventures. Ivar knew the timing was crucial; American optimism would not persist forever. When investors were manic, they would purchase just about anything.

Accurate information and better technology are important in promoting discovery, but so are excessively optimistic, unrealistic, even flat-out false anticipations. The marvelous is more important than the scientific in the initial and most risky stages of innovation. Business histories tend to emphasize technological or conceptual, “paradigm-shifting” breakthroughs, but it is the crazes, fads, and marvels that seize the imagination, including that of investors and those who undertake physical and financial risks. The gold rush, the Internet craze, tulip mania, the South Sea Bubble—some of these were exaggerations, others were swindles, but they have a prominent, if unappealingly irrational, place in the history of innovation.

Tech is the heart and soul of the American economy,” wrote James Cramer, “the chief driver of its prosperity, the keeper of its newfound world dominance, and the place where its biggest profits are.” If you wanted to pay for college and retire in a place that did more than change your bedpan, you had to invest in Tech. Awash in money, mutual fund managers shoved money at Tech, watched it grow, and then plowed their profits into even more Tech. Wall Street had finally Gotten It. The prospect of Java’s landing in 1996, for instance, sent Sun’s stock price up 157%, which sounded to the unconvinced like proof of tulip mania, but Java would soon bring all those static websites to life with movement and sound, ending Stacy Horn’s cyberspace built of words.