Tulipomania

by Mike Dash

  Dealing in offsets was the first step to liberating the tulip trade from its traditional dependence on the calendar. Some of the buying and selling that had previously been crammed into no more than four months could now be spread throughout the year. By itself the sale of the odd offset a few months before it was actually ready to be separated from its mother bulb posed no threat to the stability of the tulip trade. But it set a dangerous precedent, and as more and more florists came flooding into the market, the pressure to make tulip dealing a year-round affair only grew.

  A trading season that ran only from June until September made perfect sense to the connoisseurs, who preferred to see a plant in flower before they considered buying it and wanted to complete all their purchases for the year in time for the bulbs to be returned to the flower bed. But it was highly limiting for the new breed of tulip dealers. Because they generally had no interest in cultivating their bulbs, the old distinctions between the growing season and the lifting season meant little to the florists, who took less pleasure than their predecessors in the physical beauty of the tulip and more in its potential to earn them money. The newcomers wanted to wring as much profit from their flowers as they could, and while a handful may have appreciated the benefits of planting the bulbs and making money from their offsets, most were far more interested in buying tulips simply to resell them.

  From the autumn of 1635, then, the bulb trade changed fundamentally and forever. Ignoring the customs of the connoisseurs, increasing numbers of florists progressed from trading only tulips that they had in their possession to buying and selling flowers that were still in the ground. Bulbs then ceased to be the unit of exchange; now the only thing that changed hands was a promissory note—a scrap of paper giving details of the flower being sold and noting the date on which the bulb would be lifted and available for collection.

  There were advantages to the new system. It certainly permitted trading to take place throughout the months of autumn, winter, and spring; and because the bulbs stayed where they were until lifting time no matter who their new owner was, it was very appealing to florists who had neither the skill nor the desire to cultivate bulbs themselves. But it was potentially very dangerous too. Buyers had no opportunity to inspect the bulbs they were buying or to see them in flower. There was no guarantee of quality. And a florist could not be sure that the bulbs he was purchasing really belonged to the seller, or even if they actually existed.

  The Dutch called this phase of the tulip craze the windhandel, which can be translated as “trading in the wind.” It was a phrase rich in meaning. To a seaman it meant the difficulties of navigating a ship steering close to the breeze. To a stockbroker it was a reminder that both the tulip traders’ stock and their profits were so much paper in the wind. To the florists, however, the windhandel meant trading pure and simple, unregulated and unconfined.

  It was this innovation that made the greatest excesses of the mania possible. The introduction of promissory notes did much more than make the tulip trade a business that could flourish all the year round; it turned dealing into an exercise in speculation, and—because delivery was usually months away—it encouraged the sale and resale not so much of bulbs but of the notes themselves.

  Flowers that had once been valued for their beauty now became nothing but abstractions for dealers who cared only for their profits, and the repeated transfer of a dubious claim to ownership from one dealer to another became the chief characteristic of the bulb trade. Before long, to the scandal of straight-laced contemporaries, it became perfectly normal for florists to sell tulips they could not deliver to buyers who did not have the cash to pay for them and who had no desire ever to plant them.

  By agreeing to purchase bulbs that would not be ready for delivery for several months, the tulip traders had created what would today be called a futures market—simply defined, a form of speculation in which a dealer gambles on the future price of some commodity, whether it be flower bulbs or oil, by promising to pay a specified price for the goods on a fixed date sometime in the future. This was an event of some historical significance. In the 1630s the whole concept of futures was still a novelty. The very earliest futures markets had been organized in Amsterdam less than thirty years earlier, the invention of merchants who traded in timber, hemp, or spices on the Dutch stock exchange. Tulips were the first commodity to be bought and sold outside the markets of Amsterdam, and the first to be traded by anyone other than high-ranking merchants and stock exchange specialists.

  This, of course, was a large part of their appeal. By 1635 the regents and the great merchants of the United Provinces could choose to invest their money in a variety of ways. They could earn guaranteed interest by buying government bonds or depositing their cash with one of the many new banks that were springing up. If they felt a little more adventurous, they could buy shares at the stock exchange or purchase a stake in a local drainage project or in a ship off to trade in the Americas. Each of these investments, though, required a substantial amount of capital, and so far as the artisans, the tradesmen, and the tenant farmers of the republic were concerned, it was all but impossible to find a profitable way of investing the little money that they had. There were no mutual funds in the seventeenth century, no certificates of deposit, no personal equity plans, no tax breaks, and no tax shelters. For a Haarlem weaver investment meant buying more flax or making a down payment on a new loom. Now suddenly there was a new way of making money—one that seemed alluringly simple and straightforward, appeared to guarantee profit, and above all required little in the way of capital.

  Futures trading is a highly speculative way of doing business, but it has significant advantages. It satisfies a seller, who might, for example, be awaiting a cargo due to arrive from overseas, and who is at any rate himself probably not yet in possession of whatever he is selling. He in effect sells the risk that the price of his goods will fall before he can get them to market; he can demand a deposit (say, 10 percent) of the agreed price; and being guaranteed a definite sum of money on a fixed date, he can arrange his finances accordingly. It can also be a highly profitable arrangement for a buyer, so long as he guesses correctly whether prices will rise or fall. For example, a florist who offered a hundred guilders for a promissory note guaranteeing him ownership of a Gouda when it was lifted in four months’ time wagered that he would be able to sell the note for more than that amount before he became liable to pay for the bulb. If he could actually get no more than, say, eighty guilders for his piece of paper, he would of course lose twenty guilders come lifting time, but in the constantly rising market for tulips, gambling on future prices must have seemed absurdly simple, and the chances of actually making a loss would have struck most of those who now flocked to buy bulbs as remote.

  In truth, though, futures trading was anything but simple, and it was very much riskier than it at first appeared. Indeed, it was exceptionally dangerous. A florist with capital of only fifty guilders who was certain that prices would continue to rise might, for instance, throw caution to the wind and agree to purchase five of the hundred-guilder Goudas. His money would be enough to pay a deposit of 10 percent on each bulb, and if by lifting time the price of the tulips had doubled, his fifty guilders would have made him the owner of a thousand guilders’ worth of bulbs. After selling the flowers at the new, higher price, he could pay the balance of his obligation and walk away with a clear profit of five hundred guilders. Thus, if the trade remained buoyant, poor artisans could indeed hope to make huge fortunes from flower bulbs. But should the price of tulips fall, catastrophe was certain and bankruptcy all but inevitable. If Goudas halved in value, for example, the florist who had invested his entire savings of fifty guilders in bulbs would be facing a loss of two hundred guilders—a sum he could not possibly hope to pay.

  The Dutch government had long been acutely aware of the risks of “selling short,” as it is known. Indeed, it had consistently ruled that trading commodities that were not in the possession of either the buyer
or the seller was not merely dangerous but fundamentally immoral. Less than two years after the practice was introduced in 1608, it was banned, and laws repeating the prohibition on futures trading were passed in 1621, 1623, 1624, 1630, and 1636. The trade in tulip futures that developed in the 1630s was thus technically illegal, but the fact that the parliament of the United Provinces made six separate attempts to stamp the practice out amply demonstrates how little chance any such ban had of being properly enforced.

  Selling short, then, was dangerous, even when the goods concerned were as simple and straightforward as a cargo of Baltic timber. But tulips were an unusually volatile commodity, even by the elastic standards of the futures trade. A merchant who dealt in timber knew precisely what he was buying. A florist purchasing a tulip for delivery at lifting time had no idea. He was gambling on a living thing. To be successful, he needed not just a shrewd understanding of the price his bulb might command in several months’ time, but some idea of what was happening to it while it was still in the ground.

  The best way of making money on a flower was to buy one that was about to develop offsets that could be removed and sold separately. Bulbs that were likely to grow rapidly were thus more valuable than either immature flowers or those that were already fully developed and unlikely to produce more than a few more offsets before they died. But even the most experienced growers found it difficult to predict accurately what a single bulb of one particular variety would do, and so far as novice florists were concerned, bulb dealing was an exercise in pure speculation.

  In order to give tulip traders the basic information they needed to guess how a bulb might develop after planting, it became customary to indicate the weight of each bulb when it had been returned to the ground. Weights were given in azen (“aces”), an extremely tiny unit of measurement borrowed from the goldsmiths. One ace was equal to rather less than two-thousandths of an ounce—one-twentieth of a gram—and mature tulip bulbs might weigh anything from fifty aces to more than a thousand, depending on the variety. As well as indicating the date on which a flower would be ready for lifting, then, the promissory notes that were exchanged by florists also noted the bulb’s weight when planted, and the ledgers each dealer used to record his purchases always included a column in which the dealer listed the size of his bulbs in aces.

  From this it was only a short step to selling tulips not by the bulb but by the ace. In one respect this had the desired effect of making trading fairer. Under the old system of paying by the bulb, a florist would have been charged the same for an immature tulip weighing, say, a hundred aces, which might not produce offsets for another year or more, as he would for a mature specimen of four hundred aces. Paying by the ace, he was charged a price that more accurately reflected the development of the bulb. But the new system also meant that prices increased much more rapidly than before. Most tulips increased substantially in size while they were in the ground, so even if the price charged per ace for a given variety did remain completely unchanged from the moment a flower was planted in September or October until it was lifted the following June, the value of the bulb was still almost certain to increase significantly.

  The records of the tulip trade offer examples of just how dramatically the money invested in a single bulb could multiply. A Viceroy grown by an Alkmaar wine merchant named Gerrit Bosch in his garden just outside the city walls weighed 81 aces when it was planted in the autumn of 1636. It had grown to 416 aces when it was lifted in July 1637—a fivefold increase. An Admirael Liefkens in the same garden grew from 48 aces to 224 and a Paragon Liefkens from 131 aces to 434. Had the prices paid per ace for these three varieties remained unchanged, Bosch’s customers would have enjoyed returns varying from 330 percent to as much as 514 percent in a scant nine months. There was probably not another investment in the whole of the United Provinces that offered such spectacular results this quickly, and certainly none that all but guaranteed it. Some of the voyages undertaken by the Dutch East India Company, which enjoyed a monopoly on the lucrative spice trade, did deliver profits of 400 percent or more. Yet a single round-trip to the Indies took two years or so to complete, and while they were away, the company’s ships were exposed to the dangers of disease, shipwreck, piracy, and Spanish attack. Even the rich trades, then, exposed the privileged few who were permitted to invest in them to risks unknown to Holland’s florists.

  The earliest record of selling by the ace dates to the beginning of December 1634, when the Haarlem grower David de Mildt went with a linen worker named Jan Ocksz. to the garden owned by Jan van Damme on the Kleine Houtweg. On de Mildt’s advice, Ocksz. purchased two Goudas weighing thirty aces for thirty stuivers—one and a half guilders—per ace. He also bought two Admirael van der Eijcks, paying not by the ace but 132 guilders for each tulip, which suggests that the old system of dealing by the bulb was still in use in 1634. By 1635, however, all surviving records refer to bulbs sold by the ace.

  As the tulip trade grew in confidence and complexity, florists occasionally elaborated on this basic system. It was, for example, possible to purchase bulbs on condition that they had reached a minimum weight by the time they were lifted. In another case that involved David de Mildt, a Haarlem clog maker named Henrick Lucasz. bought two tulips—a Rosen variety, Saeyblom van Coningh, and a Violetten named Latour—at an auction organized by one Joost van Haverbeeck at the end of October 1635. With de Mildt as a witness, Lucasz. agreed to pay thirty guilders for the Saeyblom and twenty-seven guilders for the Latour, but with the guarantee that the bulbs would weigh at least seven and a half aces and sixteen aces respectively when lifted. But at lifting time they were found to weigh no more than two aces and about thirteen aces, so Lucasz. asked van Haverbeeck to return the money he had paid in advance. Van Haverbeeck, a Haarlem dealer possessed of a notoriously short temper, indignantly refused to make a refund, and the matter ended up in the hands of a lawyer. (If anything, Lucasz. escaped relatively lightly. The records of the time show that van Haverbeeck and his equally abrasive father repeatedly issued violent threats against some of their customers and were the principal suspects when the valuable tulips growing in de Mildt’s garden were vandalized in the winter of 1635.)

  Other variations were also possible. A few poorer florists bought shares in expensive bulbs. On one occasion, an Amsterdam grower, Jan Admirael, sold a half share in three bulbs to a customer named Simon van Poelenburch. On another, Admirael entered into a complicated deal with a dealer named Marten Creitser, agreeing to swap several tulips and 180 guilders in cash for eleven paintings and an engraving owned by Creitser.

  Nevertheless, the introduction of pricing by the ace did not mean that tulips of a given variety now cost the same everywhere within the Dutch Republic. Since even the most important messages could travel no faster than a man on horseback, there was no way to communicate changes in price quickly and accurately from place to place and thus no single market for tulips. Instead, each town involved in the bulb trade valued flowers slightly differently; some places were generally expensive, others cheap.

  Other factors added to the general chaos in pricing. Not only did individual florists have preferences of their own, they were also influenced by which tulips had just been bought and which sold, by which were in fashion and which were becoming more easily available. Large bulbs were generally cheaper per ace than small ones—and when all of these factors were taken into account, even tulips bought in a single place on a single day could vary significantly in price. Seven Goudas, sold in Alkmaar within the space of an hour or two, fetched prices varying from six guilders three stuivers per ace to ten guilders two stuivers, which meant the buyers paid from 765 guilders to 1,500 guilders a bulb. Three tulips of a variety called Paragon van Delft were purchased within minutes for one guilder fourteen stuivers an ace, two guilders four stuivers, and four guilders two stuivers respectively, and bulbs of Admirael van der Eijck weighing 92, 214, and 446 aces sold for 710, 1,045, and 1,620 guilders apiece.

  The rapid incr
ease in bulb prices in 1635 and the first half of 1636 had important consequences. Wealthy growers and dealers who had hitherto traded bulbs only to connoisseurs or among themselves recognized that there were new opportunities to make money. They began to offer their flowers to the florists who were streaming into the market. Then as a next step, some banded together so as to maximize their capital or improve the variety of stock they had to offer. A number of companies were formed to trade in bulbs. In September 1635, for example, the Haarlem merchant Cornelius Bol the Younger went into partnership with a grower named Jan Coopall; Bol contributed no less than 8,746 guilders 2 stuivers to the capital of the company. And in December 1636 the Haarlemmers Henrick Jacobsz. and Roeland Verroustraeten went into business with Philips Jansz. and Matthijs Bloem of Amsterdam. The articles of their company explained in some detail how the business would operate. The thirty-five-year-old Verroustraeten, who was probably already an experienced trader, was the only one authorized to deal in bulbs, and he would buy and sell tulips with money put up by the other three directors. All four directors agreed to trade only on behalf of the company and never on their own account.

  By the autumn of 1636 both the tulip companies and the professional growers must have been thinking carefully about what stock to plant for the next season. The most valuable flowers—the Admiraels, Generaels, Generalissimos, and their kin—were already too expensive for many florists to afford, and the poorer traders at the bottom of the market had begun to ask for less favored tulips that were available in greater quantity and were significantly cheaper. Like the superbly fine varieties that had been the basis of the bulb trade in the early 1630s, these flowers were termed “piece goods”—that is, tulips that were bought and sold as single bulbs—but because their prices were low, they were quoted not by the ace but in multiples of a thousand aces. Varieties sold in this way included several that became famous in their own right later on, such as the vermilion-streaked Rotgans and Oudenaers and the unusual white-on-purple Lack van Rhijn.