FINANCIAL CRASH: The Horse That Was Carrying All Our Gold Just Crashed Into The River
No way to see this coming
Today’s post has two articles. Keep reading for an addendum on tulip futures speculation.
The whole fief is reeling after what might be the biggest financial crash of our tymes: the horse that was carrying all our gold in a cart has just crashed into the river.
“Nobody saw this coming. All the experts said transporting one’s gold by horse under armed escort was safe and reliable,” spake Lord Willoughsby, who entrusted nearly his entire fortune to the horse. “Aye, he was a goode horse, too, if a bit clumsy.”
In recent years, many an investor hath been duped by a less-than-surefooted horse plummeting to its death in a river or craggy ravine. But despite the warning signs, lords and merchants keep transporting massive chests of gold and jewels on the ham-hoofed beasts. Often they are chasing quick profits by charting a course via shorter but more dangerous routes through the mountains, rather than taking the slow but steady roads through the plains.
“I can’t tell ye how many tymes I’ve told clients ‘Don’t let thy horse walk too close to the edge of that cliff’ or ‘Crossing a tenuous rope bridge whilst carrying 8,000 pounds of silver ingots is a bad idea,’” spake financial analyst Bernwin Pettibois. “But they just don’t listen.”
“Lords these days lack basic financial literacy,” Pettibois continued. “They don’t understand simple fundamentals, like diversification: always travel with a horse, a donkey, and a mule, and spread thy treasure evenly between them; or the importance of investing in castles and exotic spices, in addition to all thy hoards of gold lying around. Such knowledge should be second nature.”
Some experts hath considered inventing a form of currency that doesn’t involve extremely heavy pieces of metal, but ‘twas quickly dismissed as impractical.
“How am I supposed to flaunt my wealth before the commoners if I don’t have an ostentatious amount of gold piled up in the back of a gold-encrusted cart being pulled by a horse wearing a golden harness?” spake Lord Willoughsby. “What’s the point of having money if I can’t rub it in the poors’ faces.”
At press tyme, ‘twas revealed that the horse survived the crash, and indeed had made off with some of the gold to an outlying island with looser tax regulations.
Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.
-Charles MacKay, Extraordinary Popular Delusions and the Madness of Crowds
From 1634 to early 1637, tulips were all the rage among the Dutch. Fortunes were won and lost in their trade. People sold their houses and lands at exorbitantly low prices in order to afford a few bulbs. Markets were established in Amsterdam, Rotterdam, Haarlem, and other towns where speculators would gamble on tulip price fluctuations. Specific jobs for tulip clerks and tulip notaries were created purely to work in the tulip trade.
One sailor was jailed for months when — after returning from a long voyage and oblivious to the ongoing tulip mania — he ate a tulip bulb he found on a merchant’s desk, mistaking it for an onion.
“By 1636, the tulip bulb became the fourth leading export product of the Netherlands, after gin, herrings, and cheese. The price of tulips skyrocketed because of speculation in tulip futures among people who never saw the bulbs,” says Wikipedia. “Many men made and lost fortunes overnight.”
In 1635, a rare species called the Admiral Liefken was worth 4,400 florins. Another called the Viceroy was worth between 2,500-3,000 florins. Perhaps the most valuable species, the Semper Augustus, was worth up to 5,500 florins. For comparison, here’s some prices of other items from 16351:
Two lasts2 of wheat - 448 florins
Four lasts of rye - 558 florins
Four fat oxen - 480 florins
Eight fat swine - 240 florins
Twelve fat sheep - 120 florins
Two hogsheads of wine - 70 florins
Four tuns of beer - 32 florins
Two tuns of butter - 192 florins
One thousand pounds of cheese - 120 florins
A complete bed - 100 florins
A suit of clothes - 80 florins
A silver drinking-cup - 60 florins
If I had to choose between 20,000 pounds of cheese and a tulip, I know which I’m taking.
Of course, people eventually wisened up to the madness, and the price of tulips plummeted in February 1637.
Hundreds who, a few months previously, had begun to doubt that there was such a thing as poverty in the land, suddenly found themselves the possessors of a few bulbs, which nobody would buy, even though they offered them at one quarter of the sums they had paid for them.
…and many a representative of a noble line saw the fortunes of his house ruined beyond redemption.3
Angry tulip holders demanded the Dutch government take action. After three months of careful deliberation, the Provincial Council at the Hague decided they didn’t have enough information to make a decision.
And that was that. If you were stuck holding tulips you were out of luck. There was no longer anybody dumb enough to buy them.
The extent to which Tulip Mania could be considered a major financial bubble has been called into question. Certainly tulip prices did skyrocket during this time, and they did crash in 1637. But it’s possible tulip speculation was much more limited in scope and didn’t have quite the large-scale economic effects that MacKay claims. Perhaps it was simply a matter of supply and demand: Dutch tulip speculators in 1636 wrongly predicted the planted quantities of rare tulip breeds, so when many more tulips sprouted in early 1637 than expected, the greatly increased supply caused prices to fall (or something like that).4 The Semper Augustus wasn’t so august after all.5
The bubonic plague also may have been a factor, in both the rise and fall of Tulip Mania. A plague outbreak in 1635-1636 may have led to a sort of fatalistic risk-taking among the Dutch population, which caused a rise in speculation and irrational behavior in general6 (sounds familiar!). Or, people may have had more money, inherited from their recently deceased relatives, allowing more small-time investors to get involved in tulip speculation.
Regardless, the lesson remains: the next time a Dutch speculator asks you to trade him twelve fat sheep and two hogsheads of wine for a tulip, for the love of God don’t do it.
Prices taken from Charles MacKay, Extraordinary Popular Delusions and the Madness of Crowds. The non-tulip prices are taken from items that were traded in a a single deal for a 2,500-floring Viceroy tulip. The Dutch currency of this time period can be called either a guilder or a florin. MacKay uses florin so I stuck with that here.
The Dutch last could be a unit of mass, volume, or number. Assuming this is referring to mass, 1 last = 1,976.4 kg, or 4,357.2 pounds. The two lasts of wheat and four of rye seems like an extraordinary amount to trade for a bulb.
Probably a gross oversimplification of the very thorough economic analysis of tulip mania in Explaining the timing of tulipmania's boom and bust: historical context, sequestered capital and market signals, by James E. McClure and David Chandler Thomas, Cambridge University Press. Tulips are hardy and sprout in late winter/early spring. Interestingly, it was always the bulbs, not the flowers or seeds, that were considered most valuable and were most speculated on. A flower was just one flower and would die each year, and seeds could take over a decade to grow into a flower-producing bulb. A single bulb, on the other hand, could produce multiple new offshoot bulbs each season. These could be dug up in the summer and sold to the highest bidder. Thus, bulbs were a better “investment.”
According to the McClure and Thomas article above, bulbs that produced the rarest and most beautifully-colored flowers actually produced these colors because they were infected with a mosaic virus. The virus caused their flowers to have unique colors, and also made the bulbs less hardy, and thus, rarer.
Jan de Vries, The Economy of Europe in an Age of Crisis, 1600-1750, Cambridge University Press, pages 225-226.