Tulipmania Misreported

The 17th century speculation in tulips in the Netherlands and the spectacular collapse of prices is generally presented as a time of madness that resulted in many people becoming bankrupt, but this is to misunderstand how the economy worked.

The people who grew the bulbs were a small group who knew each other, and investors only risked what they could afford to lose,as Andrew Pettegree explains in his Invention of News: There were few bankruptcies and the wider Dutch economy was barely affected. The tulipmania did not lead simple artisans tempted into the market by hopes of a quick fortune into penury. the most extravagant stories of destitute carpenters and weavers emanate from the moralising pamphlets that followed the collapse of the market.” Newspapers at the time barely reported on commerce, as it was a fast moving field, and conducted amongst a closed group. So our knowledge largely comes from the satirical pamphlets etc after the event, often by people at a distance from it.

A similar event was the British ‘South Sea Bubble’, an explosion of speculation without a trading company, that hoped to open up trade in the Pacific, then still monopolised by Spain. This story also allegedly led to mass bankruptcies, the most spectacular being that of the Duke of Chandos, the most wealthy commoner in England who had his own orchestra and employed Handel and the finest artists to build his house, Cannons. But again, the reports we read are overstating the problem:

“The social consequences of the Bubble should not be exaggerated. Most of those who invested were moneyed, and few were left destitute. The collapse of the Company was most deadly for its directors, who had made stock available, often on very preferential terms, to numerous Parliamentarians. Faced with personal losses, the Members of Parlament were at their most virtuous and censorius. The directors were summoned before the House of Commons and stripped of much of their personal wealth. Having performed this ritual sacrifice, the appetite for more fundamental investigation palled. The most scandalousaspect of the project had been the terms under which stock had been made available to persons of influence. They were allowed an option to buy at a stipulated rate, at no payment. It was a risk-free trade: if the stock went up, they took the profit, and if it did not the option lapsed. This irregular procedure, a bribe by any other name, had been recorded in the famous green book of the Company Secretary, Robert Knight. This mysterious volume had disappeared when Knight fled the country, but its pages included many surprising names, including that of the king, George I. When Knight was taken into custody in the Austrian Netherlands, the ministry was obliged to make energetic public efforts to secure his return to face trial while simultaneously making equally urgent representaitions to the Habsburg authorities to ensure that these formal requests were denied. Incredibly, this tortuous procedure was successful; still more surprisingly, it remained secret. Although long suspected, the full extent of the ministry’s duplicity was only revealed by documents discovered in the imperial archives in Vienna during the pst 20 years. The famous green book was never seen again.”

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