Extraordinary Popular Delusions and the Madness of Crowds: Tulip Mania

Charles Mackay was a Scottish journalist and poet who, in 1841, wrote a famous book about the times when whole nations lost their minds.In his preface he wrote a line that investors still repeat today.

“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.In the 1630s, the Dutch, a careful and sensible people, went mad for tulips.Rich men paid huge prices for rare bulbs, and soon shopkeepers, sailors, servants and even chimney-sweeps sold their houses and land to buy flowers.

One single bulb, called the Viceroy, was paid for with wheat, oxen, pigs, sheep, wine, beer, butter, cheese, a bed, a suit of clothes and a silver cup.A sailor once saw a rare bulb on a merchant’s counter, thought it was an onion and ate it with his fish for breakfast.That breakfast cost as much as feeding a whole ship’s crew for a year.

Everyone believed the love of tulips would last for ever, and that the riches of the world would flow into Holland.At last, the more careful people saw that rich men no longer bought tulips to keep in their gardens, but only to sell them again at a profit.Somebody, they saw, must lose terribly in the end.Prices fell, and never rose again; bulbs that had cost thousands of florins could not be sold for a quarter of their price.”

Mackay’s tulips became the classic example of a ‘bubble’: a price that rises only because people expect it to keep rising.