Tulips are native to the Mediterranean. and were brought to Holland as a commercial crop by Conrad Guestner in 1559. They thrived because of the good climate and lack of natural enemies. Because of their beauty and scarcity, they quickly became a status symbol for the wealthy.

By 1620, stocks in companies and goods were regularly traded on the Dutch Stock Market. The trading of rare tulip bulbs became an increasing interest of wealthy Dutchmen. Large fortunes were being made. The financial vehicle, the option future, came into being on the Dutch Stock Market. By buying options, one could leverage one's money and thus acquire more tulips for less outlay of capital.

An option future states that the seller will sell a stock, in this case tulips, at a set price on a set day in the future. The buyer pays perhaps 10 or 15% of the price for this privilege. If the price goes up the buyer will buy at the lower fixed price. If it goes down, he may decide not buy and forfeit the cost of the option.

Between 1620 and 1637, the frenzy to buy rare and colorful tulip bulbs reminds me of the buying of shares, in the 1990s, of Internet companies that had never shown a profit. In 1635, as in 1999, word of the fortunes being made spread throughout the society. The number of investors (speculators) increased. Everyone from wealthy merchants to chambermaids were investing.

The official record of the stock market indicates that someone traded a carriage and horse for a single rare bulb. The cost of the rarest bulbs skyrocketed to a value of between $17,000 and $76,000 in present-day dollars.

By 1636, tulips were established on the Amserdam stock exchange as well as exchanges in Rotterdam, Haarlem, and other trading centers in Europe. Tulip notaries and clerks were established to record transactions, and new laws were passed to control the frenzy. However, during that same year, 1636, people began to sell their holdings. The selling began slowly and then, as people started to fear for their investments, accelerated. Within six weeks, prices had dropped by 90%. At the end of the frenzy the price of tulips dropped to less than a dollar in present-day terms.. Imagine having bought the $76,000 tulip bulb and seeing its value decline to under a dollar in just a few weeks! The impact on the economy of Holland was severe, a shock from which the country required many years to recover.

So many Dutch bankruptcies impoverished the government, which had to dramatically reduce its army and navy. A few years later, the English were able to annex New Amsterdam and rename it New York because the Dutch no longer had an army and navy in the New World to defend their colony.

For those who still hold once high-flying Internet stocks, remember 3 million tulip bulbs were sold in 1998, 350 years after the crash of the tulip market. Of course, many speculators have gone bankrupt since 1637.

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