tulips

[David Farber <dave () farber net>]

Begin forwarded message:

From: "Dave Wilson" <dave () wilson net>
Date: September 29, 2008 9:00:00 AM EDT
To: "David Farber" <dave () farber net>
Subject: tulips

I decided to reread the chapter on the Dutch tulip mania of the 17th  
century from a 19th century tome, "Extraordinary Popular Delusions and  
the Madness of Crowds" by an English journalist, Charles Mackay (note  
that modern free market thinkers believe this account is BS, because  
there can by definition be no speculative manias in a free market).  
Anyway, I was struck by this paragraph, which details what happened  
after a few years when the music stopped and the price of tulip bulbs  
stopped going up (the subsequent decline marks, coincidentally or not,  
the end of the Netherlands as a world power):

" At last, however, the more prudent began to see that this folly  
could not last for ever. Rich people no longer bought the flowers to  
keep them in their gardens, but to sell them again at cent. per cent.  
profit. It was seen that somebody must lose fearfully in the end. As  
this conviction spread, prices fell, and never rose again. Confidence  
was destroyed, and a universal panic seized upon the dealers. A had  
agreed to purchase ten Sempers Augustines from B, at four thousand  
florins each, at six weeks after the signing of the contract. B was  
ready with the flowers at the appointed time; but the price had fallen  
to three or four hundred florins, and A refused either to pay the  
difference or receive the tulips. Defaulters were announced day after  
day in all the towns of Holland. 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. The cry of distress resounded  
everywhere, and each man accused his neighbour. The few who had  
contrived to enrich themselves hid their wealth from the knowledge of  
their fellow-citizens, and invested it in the English or other funds.  
Many who, for a brief season, had emerged from the humbler walks of  
life, were cast back into their original obscurity. Substantial  
merchants were reduced almost to beggary, and many a representative of  
a noble line saw the fortunes of his house ruined beyond redemption."




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