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Short Stuff: Tulipmania · Stuff You Should Know

• 0:04
  Speaker 1: Hey, and welcome to the short Stuff. I'm Josh and
• 0:06
  Speaker 1: there's Chuck and Jerry sitting in for a Dave. And
• 0:08
  Speaker 1: this is short stuff about tulip mania.
• 0:13
  Speaker 2: That's right. Tulip Mania was perhaps the first financial bubble
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  Speaker 2: to happen and then burst. And we should probably talk
• 0:23
  Speaker 2: a little bit about what an economic bubble is, don't
• 0:26
  Speaker 2: you think.
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  Speaker 1: Yeah, it's where the price of a good or an
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  Speaker 1: asset or something like that. Let's just say item sure
• 0:33
  Speaker 1: goes sky high way way way beyond any reasonable value
• 0:38
  Speaker 1: that it should have, and it's because of exuberant trading.
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  Speaker 1: And the more exuberant the trading is, the more people
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  Speaker 1: get sucked in by it, and they want to make
• 0:46
  Speaker 1: some money too, so more people start investing, and the
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  Speaker 1: prices keep going higher and higher and higher. That's the
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  Speaker 1: first part of the bubble. There's another less happy side
• 0:57
  Speaker 1: of the bubble too.
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  Speaker 2: That's right, because as anyone who's ever been to a
• 1:02
  Speaker 2: bubble rave or a played bubbles with your kids or
• 1:07
  Speaker 2: just adult friends who enjoy bubbling, that bubble's going to burst.
• 1:11
  Speaker 2: They all will eventually, And that's what happens with an
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  Speaker 2: economic bubble too. The price will drop usually pretty quickly,
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  Speaker 2: and a lot of people start selling off very quickly,
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  Speaker 2: and those who get out early enough can usually avoid it.
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  Speaker 2: But every single time, someone is going to be left
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  Speaker 2: holding that asset that is all of a sudden not
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  Speaker 2: worth much of anything. And a lot of times the
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  Speaker 2: people have invested their entire life savings in this stuff.
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  Speaker 2: A lot of times they've bought this stuff on credit,
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  Speaker 2: and all of a sudden, this thing isn't worth that
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  Speaker 2: much money and they're in real, real financial trouble.
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  Speaker 1: Yeah, it's a bad scene.
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  Speaker 2: Yeah.
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  Speaker 1: And so, like you said, all the way back in
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  Speaker 1: the seventeenth century, people consider the first economic bubble to
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  Speaker 1: have surrounded tulips and tulip bulbs in Holland.
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  Speaker 2: That's right. And when you said tulip mania, that's really
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  Speaker 2: what it was called. You weren't just being cheeky.
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  Speaker 1: No, that's what it's referred to. I'm sure among economists,
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  Speaker 1: among historians, among the Dutch, among podcasters, it's called tulipmania.
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  Speaker 1: That wasn't just me being funny.
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  Speaker 2: So a little bit about tulips native to places like
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  Speaker 2: Kazakhstan and Eastern Europe and the Himalayas. They don't look
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  Speaker 2: like the tulips in their original form that we think
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  Speaker 2: of today, but they've been cultivated over the years and
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  Speaker 2: you know, cross bread to where they look like they
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  Speaker 2: look like tulips. Now, these these beautiful we have tulips
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  Speaker 2: popping up here in Atlanta already this spring and they're lovely.
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  Speaker 2: They're grown from bulbs and they're I don't know about
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  Speaker 2: how easy or hard it is, but they, like I said,
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  Speaker 2: are cross bread to create new and exciting varieties and colors.
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  Speaker 1: Yeah. So tulips first arrived in Holland around sixteen hundred.
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  Speaker 1: The Dutch East India Company was moving spices and exotic
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  Speaker 1: goods from the East to Europe, Holland in particular, and
• 3:04
  Speaker 1: tulips arrived. And for the first couple decades they were
• 3:07
  Speaker 1: you know, if you were a plant enthusiast, you probably
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  Speaker 1: had a tulip in your collection. If you were very,
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  Speaker 1: very rich and just wanted to show off how cutting
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  Speaker 1: edge you were, you might have some tulips in your garden.
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  Speaker 1: But they weren't a big deal until sixteen thirty four.
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  Speaker 1: And the reason they became a big deal almost overnight,
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  Speaker 1: was because those same upper classes and nobility in Holland
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  Speaker 1: decided that tulips were now a status symbol, and that
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  Speaker 1: if you didn't have tulips growing in your garden and
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  Speaker 1: you were a member of the aristocracy or nobility, you
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  Speaker 1: were a total loser with a capital A.
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  Speaker 2: That's right. So in this case you had, economically speaking,
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  Speaker 2: you had a big time demand all of a sudden.
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  Speaker 2: But not only was it a big time demand, it
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  Speaker 2: was a big time demand of people that had a
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  Speaker 2: lot of money. So the price went through the roof
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  Speaker 2: very quickly. A bulb, a single bulb, one tulip bulb,
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  Speaker 2: would fetch two thousand florin, And just to put it
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  Speaker 2: into perspective of what you could buy back then, for
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  Speaker 2: two thousand florin, sixteen thousand pounds of cheese, two hundred
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  Speaker 2: and fifty tons of beer, a couple of hundred sheep,
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  Speaker 2: or maybe sixteen grown oxen. And they were paying prices
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  Speaker 2: in today's dollars. Thank you Investipedia for doing this weird translation,
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  Speaker 2: but in today's dollars for a single tulip bulb, they
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  Speaker 2: were paying fifty grand, one hundred and fifty grand even
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  Speaker 2: sometimes for the rarest varieties, up to a million dollars
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  Speaker 2: for a single bulb.
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  Speaker 1: Yeah, that fifty you do one hundred and fifty grand.
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  Speaker 1: That was like day to day stuff, right, that's what
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  Speaker 1: a single tulip bulb, single bulb. It was nuts. Even
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  Speaker 1: at the time, there were people who were watching this
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  Speaker 1: and they're like, this is crazy. They're tulips, for God's sake.
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  Speaker 2: Yeah, They're riding out a giant check with a feathered
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  Speaker 2: pen and they're just like, I can't believe I'm paying
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  Speaker 2: this amount of money.
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  Speaker 1: For exactly I say, we take a break and come
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  Speaker 1: back and talk more about tulip mania, Okay, Chuck. So
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  Speaker 1: we were just talking about how crazy expensive a single
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  Speaker 1: tulip bulb was in Holland in the sixteen thirties.
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  Speaker 2: Single tulip bulbs.
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  Speaker 1: Right, So, some people among the wealthy would use like
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  Speaker 1: significant portions of their fortune, of their wealth to buy
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  Speaker 1: tulips and just grow them. They weren't reselling them, they
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  Speaker 1: weren't doing anything. They were buying tulips and growing them.
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  Speaker 1: They were spending half of their worth to buy tulips
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  Speaker 1: just to show off. Right.
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  Speaker 2: Yeah.
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  Speaker 1: At some point people started saying, like I think that
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  Speaker 1: if I start buying tulips and then selling them for
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  Speaker 1: a higher price, I could really make some money. And
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  Speaker 1: as a matter of fact, I can start speculating where
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  Speaker 1: I will go into futures contracts with people and say, hey,
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  Speaker 1: I'll sell you X number of tulips in three weeks
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  Speaker 1: for X number of dollars because I'm betting that the
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  Speaker 1: price is going to go down, but you're betting that
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  Speaker 1: the price is going to go up. Let's see who wins.
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  Speaker 1: And speculation is one of the main drivers essentially of
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  Speaker 1: an economic bubble. Like it's crazy that the single bulbs
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  Speaker 1: were going for that. But once people started speculating and
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  Speaker 1: creating like instruments and futures contracts based on that crazy
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  Speaker 1: high price, that's when it really started to get troublesome.
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  Speaker 2: Yeah, for sure, they were actually sold on the Dutch
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  Speaker 2: stock Exchange, and these were, you know, some wealthy investors,
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  Speaker 2: but everybody got in on the gang, like the gang
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  Speaker 2: the game, just regular middle working class people, even like
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  Speaker 2: people of the lower classes. They started cashing in everything
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  Speaker 2: they could, selling their houses, in some cases, selling the
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  Speaker 2: tools of their trade that they were previously making money
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  Speaker 2: on to invest in these tulips. And you know what's
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  Speaker 2: going to happen is that eventually is going to burst
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  Speaker 2: and it did so less than two years after this
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  Speaker 2: frenzied investment stuff started in sixteen thirty six.
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  Speaker 1: Yeah, the bubble bursts because some people, like we said
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  Speaker 1: earlier that there were some people who are like, this
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  Speaker 1: is crazy, and even some speculators and people who are
• 7:41
  Speaker 1: invested in tulips were like, this is not going to
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  Speaker 1: last much longer. I'm going to get out. And as
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  Speaker 1: more people started to decide to get out, you can
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  Speaker 1: trigger a panic. And if you trigger a panic, all
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  Speaker 1: of a sudden, the bubble bursts and the price just
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  Speaker 1: drops precipitously. And that's what happened with the tulip mania bubble.
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  Speaker 1: A bunch of people who had large stocks of tulip
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  Speaker 1: bulbs when the price dropped almost overnight, were ruined financially.
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  Speaker 1: They had, say, hundreds of thousands of dollars worth of
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  Speaker 1: tulips that they'd paid hundreds of thousands of dollars for
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  Speaker 1: that were now worth hundreds of dollars, and it was
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  Speaker 1: a bad jam for anybody who was caught with tulip
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  Speaker 1: bulbs when the bubble burst.
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  Speaker 2: Yeah, I mean it affected the wealthy obviously in some cases,
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  Speaker 2: but it also affected a lot of those people that
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  Speaker 2: were looking to get wealthy and did sometimes you know,
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  Speaker 2: make a lot of money during this you know, less
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  Speaker 2: than two year period. But you know, like I said,
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  Speaker 2: some people sold their homes and all of a sudden,
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  Speaker 2: they don't have a home and they're stuck with all
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  Speaker 2: these tulips. The trades people who you know sold their
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  Speaker 2: tools because they were like, hey, I'm in the tulip
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  Speaker 2: game now I don't need these iron working skills or tools.
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  Speaker 2: All of a sudden they couldn't even go back to
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  Speaker 2: that trade because they didn't have the stuff they needed
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  Speaker 2: to do it. And the people who bought those future
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  Speaker 2: contracts were the people that were really really in trouble.
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  Speaker 1: Right, Yeah, because again you're saying, I will buy a
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  Speaker 1: thousand tulip bulbs in four weeks at you know, a
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  Speaker 1: million dollars, and when the bubble burst and those tulip
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  Speaker 1: the thousand bulbs were now worth one thousand dollars and
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  Speaker 1: you're on the hook to pay a million dollars for them. Yeah,
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  Speaker 1: those speculators were like I'm not I'm sorry, I'm not
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  Speaker 1: doing this, or they can't. Yeah, they might not have
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  Speaker 1: been able to any longer. But the suppliers who had
• 9:31
  Speaker 1: these tulip bulbs and were technically owed a million dollars
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  Speaker 1: regardless of what the tulip bulbs were were worth. They
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  Speaker 1: won their bet, but they they still the buyers would
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  Speaker 1: not pay the suppliers, and that's what really created this
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  Speaker 1: huge financial crisis, and it got bad enough. At first
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  Speaker 1: the Dutch governments of the big cities and I think
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  Speaker 1: the monarchy did not get involved. They did not want
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  Speaker 1: to get involved. The courts were like, we're not going
• 10:00
  Speaker 1: to hear any cases because these are bets as far
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  Speaker 1: as the law is concerned, and a bet isn't legally binding.
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  Speaker 1: But it was so bad. The Dutch economy was in
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  Speaker 1: such tatters because so many people had gotten into tulips
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  Speaker 1: chuck that they just like you said, trades, people just
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  Speaker 1: sold their tools, people sold their houses. The regular economy
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  Speaker 1: that was built on that kind of work and stuff
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  Speaker 1: like that, it sagged. It was unmaintained during this tulip mania.
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  Speaker 1: So it was a big problem that the Dutch had.
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  Speaker 1: So finally some of the higher ups got involved and
• 10:34
  Speaker 1: tried to figure this out.
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  Speaker 2: Well, they tried to, yeah, not too much effect, but
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  Speaker 2: they the courts finally said, all right, we have to
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  Speaker 2: do something here, So why don't we work out a
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  Speaker 2: deal where the traders paid ten percent of the contract's
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  Speaker 2: face value. But nobody was happy with that because the
• 10:49
  Speaker 2: suppliers were still losing tons of money. The buyers still
• 10:54
  Speaker 2: were in bad shape because the value of those tulips
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  Speaker 2: just you know, plummeted and ten percent of future contract
• 11:01
  Speaker 2: was a lot more than they were worth now. And so,
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  Speaker 2: you know, nobody really won in the end, and it
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  Speaker 2: wrecked the Dutch economy for you know, it took a
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  Speaker 2: couple of decades to sort of naturally heal itself back
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  Speaker 2: to where it was.
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  Speaker 1: Yeah, that's what the Dutch government ultimately decided to do,
• 11:18
  Speaker 1: is nothing, and it just had to mend itself naturally
• 11:21
  Speaker 1: as people got back to work and people sold their
• 11:24
  Speaker 1: tulip bulbs for way less. But they did sell their
• 11:27
  Speaker 1: tulip bulbs because the Dutch were still and are still
• 11:31
  Speaker 1: kind of crazy for tulips. Oh yeah, I read that
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  Speaker 1: they still pay higher prices than other countries for tulip
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  Speaker 1: bulbs because people just know that the Dutch are crazy
• 11:40
  Speaker 1: for tulips and they'll pay it. And I guess about
• 11:44
  Speaker 1: this time of year every year, the Dutch country side
• 11:47
  Speaker 1: just explodes in color.
• 11:49
  Speaker 2: Yeah, it's gorgeous. And I can also recommend a classic
• 11:54
  Speaker 2: Conan O'Brien bitt when he used to go on location
• 11:57
  Speaker 2: and do remote stuff. He has a very very funny
• 12:01
  Speaker 2: one from I believe his first iteration of his show
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  Speaker 2: where he and Andy went to Amsterdam and went out
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  Speaker 2: with the camera to the tulip farms and the tulip markets,
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  Speaker 2: and it was very very funny.
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  Speaker 1: I'm sure you can still find out. Thanks. Thanks for
• 12:16
  Speaker 1: the recommendation. You got anything else?
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  Speaker 2: I have no other recommendations other than plant tulip bulbs.
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  Speaker 2: They're gorgeous.
• 12:23
  Speaker 1: Yeah, and beware economic bubbles. Yeah, that too short. Stuff
• 12:27
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• 12:31
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• 12:34
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