Membership required

You need to be a Member to listen to this podcast

From €5

per month

See membership options
Episode
43

Tulipmania // When Flowers Cost More Than Houses

First published on
April 10, 2020
Economics
-
22
minutes
Economics
Weird history

In Holland in the 1600s the price of tulips rose so much that a single bulb reportedly cost more than a townhouse on Amsterdam's grand canal.

In this episode we look at the real story behind one of the greatest bubbles in history.‍

Subtitles will start when you press 'play'
You need to subscribe for the full subtitles
Already a member? Login
Download transcript & key vocabulary pdf
Download transcript & key vocabulary pdfDownload transcript & key vocabulary pdf

Transcript

[00:00:04] Hello, hello, hello, and welcome to English Learning for Curious Minds by Leonardo English. 

[00:00:10] The show where you can listen to weird and wonderful stories and learn fascinating things about the world at the same time as improving your English. 

[00:00:21] I'm Alastair Budge. 

[00:00:23] Today we are going to be talking about tulip mania, the tulip bubble, when flowers cost more than houses.

[00:00:33] If you have never heard of the tulip bubble before, well you are in for a treat

[00:00:39] And if you had heard about it but can't quite remember much, well, don't worry. 

[00:00:45] In today's podcast, we are going to talk about how it got to the stage that one single bulb of a tulip was reportedly worth the same as a large townhouse on Amsterdam's grand canal.

[00:01:02] Before we get right into that, though, let me just remind those of you listening to this podcast on whatever podcast app you might be listening to it on, that you can get a copy of the transcript and key vocabulary for the podcast over on the website, which is Leonardoenglish.com. 

[00:01:20] If you are looking for a quicker, more interesting way to improve your English, then having the transcript and key vocabulary in front of you is very helpful.

[00:01:30] Not only will it help you follow along with the podcast, but you'll also be able to learn new words and phrases far more quickly than you would do just by listening alone. 

[00:01:43] So go and check that out. It's at Leonardoenglish.com. 

[00:01:48] Right then tulip mania or the tulip bubble. 

[00:01:54] Let's just start with some quick definitions. 

[00:01:59] A tulip, for those of you who aren't aware, is a brightly coloured flower. 

[00:02:05] They are normally red, pink, yellow or white. 

[00:02:09] You'd definitely recognise one if you saw it. 

[00:02:12] Nowadays, they are relatively common and you can find them pretty inexpensively, they are generally quite cheap. 

[00:02:22] However, in the 1600s in Holland, they were anything but.

[00:02:29] From their introduction to Europe in the late 16th century, the price of a tulip bulb, that part of the plant from which the flower grows, the price of tulip bulbs increased dramatically until February, 1637, where there was a spectacular collapse in the price.

[00:02:54] It is said that at the height of tulip mania, the price of a single bulb, one single tulip bulb could be up to 5,200 guilders. 

[00:03:08] Now, the guilder was the currency in Holland at the time, and I would imagine that me just saying 5,200 guilders doesn't mean very much to you. 

[00:03:19] It's not very helpful. 

[00:03:21] So let's put it in context.

[00:03:23] That is about 20 times the annual salary of a skilled worker, such as a carpenter

[00:03:31] It's five times what Rembrandt charged for a painting. 

[00:03:37] And in today's equivalent, it's probably about a million dollars. 

[00:03:42] And that's all for a single bulb of a plant which you can probably buy now for well under a dollar.

[00:03:52] So I guess the question that you might have would be why and how did they become so expensive? 

[00:04:03] Yes, it's quite a beautiful flower, but at the end of the day, it's just a flower. 

[00:04:10] Why would anyone pay so much for one? 

[00:04:14] Well, yes, it's obviously a huge amount of money, but on one level it's not completely, completely mad.

[00:04:23] Firstly, the price of anything is made up of a few factors

[00:04:30] For example, how much it costs to produce, how many of them exist, and how many people want one. 

[00:04:39] Obviously if something is very rare, lots of people want it, well, it's likely to have a high price. 

[00:04:47] And if the supply of something is limited, if there aren't that many of them in existence, then the more that are sold, the fewer there are for people to buy.

[00:05:01] And so the more people are willing to pay to buy one, therefore, the fewer there are, and you can see that the circle continues. 

[00:05:10] If people see that the price of something is rising and they think that they can make a quick buck, they can make some quick money by buying something and then selling it to someone for more, even if they have no need for it, well, that's all well and good for a period of time. 

[00:05:31] And tulips in the 1600s in Holland, they ticked a lot of the boxes for something that should be expensive. 

[00:05:40] They were in pretty short supply and they were in very high demand. 

[00:05:48] They were coveted, they were highly desired by the middle and upper classes, for reasons that we'll talk about in a bit. 

[00:05:57] And the more that they were desired, the more people wanted them, the more the price went up and up and up. 

[00:06:05] And so more people tried to jump in on the game

[00:06:10] They wanted to join the craze and buy tulips in anticipation of being able to sell them for more later on.

[00:06:22] So to circle back a minute. 

[00:06:24] When I said it's not completely mad to pay a huge amount of money for something that we might now think is not worth a huge amount of money, it's not mad at all for me to buy a tulip bulb for $500,000 if I know that I can sell it to you for $600,000. 

[00:06:46] But this only works if the price of something continues to rise. 

[00:06:51] And as everyone knows, or everyone should know, there is no such thing as a guarantee that the price of something will continue to rise. 

[00:07:02] Anyone who tells you differently is either not a very good student of history or trying to trick you into doing something that you probably shouldn't do. 

[00:07:14] But let's get back to tulips.

[00:07:16] Why was it that tulip bulbs, of all possible things, became so expensive?

[00:07:23] Well, the tulip was introduced to Holland in the late 16th century, having been introduced to Europe by the Ottoman empire. 

[00:07:35] Tulips were different to all the other flowers that existed in Europe at the time. 

[00:07:43] They were bright and colourful, seemed very exotic, and they quickly became a hit with rich merchants who were flush with cash, who had made lots of money through trade.

[00:07:58] Holland was, at this time, one of the richest countries in the world, after gaining independence from Spain. 

[00:08:07] It had become a centre of world trade. 

[00:08:11] Huge fortunes were made, many merchants and their investors, their backers, many became fantastically rich and with all this money, they wanted a way to show off their wealth, to flaunt their wealth. 

[00:08:29] Tulips, as a new and exotic flower, became very desirable with these rich merchants. 

[00:08:40] And some particularly rare tulips became incredibly sought after, incredibly wanted by these merchants. 

[00:08:49] Specifically, there was one called a broken tulip, which produced flowers with stripes on it.

[00:08:59] This was considered the most beautiful of all the tulips, and of course, it came with the largest price tag

[00:09:09] Now, you may not know much about how tulips actually grow. 

[00:09:14] I didn't know much about it either, and I'm not an avid gardener, so I'll try to keep this simple. 

[00:09:22] Tulips can grow both from bulbs, and from seeds

[00:09:27] But a tulip bulb is only formed after 7 to 12 years. 

[00:09:34] When the bulb turns into a flower, the bulb disappears, but another kind of bulb is formed as well as several other things called buds, which can then be turned into bulbs

[00:09:51] So long story short - tulip bulbs take a long time to appear, but once you have one, you can turn that into several more bulbs

[00:10:03] And tulips only bloom, they only turn into flowers, twice a year, in May and September. 

[00:10:13] Outside of that period, they can be moved around, they can be transported, but they are pretty fragile

[00:10:21] The reason I'm talking here about how tulips grow is twofold: it's for two reasons. 

[00:10:29] Firstly, lots of people thought that they could basically buy one tulip bulb and turn it into multiple bulbs, which they could then sell on to other people. 

[00:10:42] This sounds like good advice in practice - it sounds like a good investment - but so long as the price doesn't go down.

[00:10:51] Secondly, the fact that tulip bulbs only flower, they only turn into flowers, twice a year meant that if you wanted to buy a tulip outside of that season, then what you had to do was sign a contract with someone who had a tulip bulb to buy a tulip at a certain point in the future.

[00:11:19] So to give you an example, if I had a tulip bulb that was going to flower in September, let's see, I could say to you that I will sell you the flower for X thousand dollars or X hundred dollars in four months' time. 

[00:11:36] It's basically what we know now as a futures contract and these tulip futures were some of the earliest forms of these now very popular financial instruments.

[00:11:52] So what happened was that prices rose and rose, and in around 1634 professional traders entered the tulip market. 

[00:12:04] People were buying and selling these tulip bulb contracts without the intention of ever actually taking ownership of the tulips.

[00:12:15] All they wanted to do was to buy a contract then to sell it on to someone else for more money. 

[00:12:25] And for lots of people, for a few years, they managed to do this quite successfully. 

[00:12:33] When the going is good, as they say, everyone makes money. 

[00:12:38] But there is this idea of the greater fool theory that the price of something is not determined by its intrinsic value, but by how much someone else is willing to pay for it.

[00:12:54] It doesn't matter how much you pay for something, as long as you can find someone who is prepared to pay more than you paid for it.

[00:13:03] However, the good times couldn't go on forever. 

[00:13:09] Tulip mania reached its peak in the winter of 1636 to 1637 when some bulbs were reportedly changing hands, they were being bought and sold, 10 times in a day. 

[00:13:25] And when we say changing hands here, remember we're not talking about physical tulips.

[00:13:33] This wasn't a load of people with gardening gloves, buying and selling plants. 

[00:13:39] It was people with pieces of paper, contracts to buy and sell tulips. 

[00:13:45] They rarely took physical possession of the actual tulip bulbs

[00:13:50] But didn't anyone say, ' Hey, this seems a little weird, why are we paying so much money for this?'

[00:13:59] Well, when everyone seems to be making money and there is this feeling that the price can't do anything but increase, people behave in strange ways. 

[00:14:11] All sense of rationality disappears. 

[00:14:15] It goes out the window

[00:14:17] But as with any bubble, there is one point where the price is just too high and something changes in the market to scare people and send the price crashing down.

[00:14:34] In Holland that point came in the year 1637. 

[00:14:40] Traders had been borrowing money in order to make tulip orders, promising to pay greater and greater sums in order to secure the most desirable tulip bulbs

[00:14:56] And towards the end of 1636 people had started to realise that tulips weren't actually that difficult to grow. 

[00:15:08] But the price continued to rise and rise.

[00:15:12] Then one morning in February, 1637 a tulip didn't sell for the first time at an auction and the market panicked

[00:15:25] People thought, 'hang on, this is strange. The price had been going up and up and up, and now if no one's buying this particular tulip, something must be wrong'. 

[00:15:37] So the price fell, and it fell some more and more and more and continued to fall sharply.

[00:15:43] It nose dived

[00:15:47] As there were so many people reportedly caught up in tulip mania, it was thought for a long time that there was a huge effect, a huge impact, on Dutch society. 

[00:16:00] Fortunes were lost, people went bankrupt, they lost all of their money, and people would throw themselves into canals in order to escape their debts.

[00:16:14] That was the traditional view of what happened. 

[00:16:18] However, there has been quite a lot of recent evidence that suggests that this conventional view of tulip mania is actually quite exaggerated, and it makes for a more interesting story than is really true. 

[00:16:36] The most famous account of tulip mania, of the tulip bubble, was in a book written by a Scottish author called Charles Mackay in 1841, 200 years later.

[00:16:50] Mackay never went to Holland. 

[00:16:53] He never consulted any of the primary sources, and it's now thought that he exaggerated it greatly. 

[00:17:02] Yes, the price of tulip bulbs did skyrocket

[00:17:06] However, it wasn't quite the scenario that he described.

[00:17:10] It wasn't quite this situation that every man and his dog was speculating on the price of tulips. 

[00:17:17] According to recent historians, the tulip bubble mainly affected the merchant class and the very wealthy. 

[00:17:28] Yes, there may have been people who lost very large amounts of money, but they were the kinds of people who could actually afford to lose large amounts of money.

[00:17:40] It doesn't really make it any less silly. 

[00:17:43] However, it wasn't quite the traditional view that the mania had gripped the entire country and destroyed the Dutch economy.

[00:17:54] Mackay, the author of the 'original', in inverted commas, original book about tulip mania also claimed that the rise of the plague, the black death, was a reason that people were willing to risk everything in order to make a fortune on tulips.

[00:18:13] If you might die tomorrow, well you may as well take a huge risk and try and make some money. 

[00:18:20] But most modern historians also dispute this claim. 

[00:18:25] They say that the only effect the plague may have had is that people had a bit more money because they had inherited money from relatives who might have died in theplague.

[00:18:39] So yes, Mackay exaggerated it quite a bit. 

[00:18:43] In any case though, it remains the classic example of a speculative bubble.

[00:18:51] But have we learned our lessons from tulip mania

[00:18:55] Well, modern history would suggest not really. 

[00:19:00] In the past 500 years since tulip mania, we have seen multiple new bubbles, from the South Sea Bubble in the 18th Century in the UK, the Mississippi Bubble at a similar time in France.

[00:19:14] Then more recently, we had the Dot Com bubble with internet companies at the end of the 20th century, and although many would debate this I'm sure, the meteoric rise and fall of Bitcoin and other cryptocurrencies over the past few years shows a lot of bubble characteristics

[00:19:37] In all of these cases, there are obviously people who managed to make huge fortunes, just vast amounts of money.

[00:19:46] But there are, of course, those who lost fortunes trying to ride the wave, blinded by this view that the price could only increase. 

[00:19:58] And all is well and good while the price keeps on rising. 

[00:20:02] But if you are one of the people who finds yourself having promised to pay a six figure sum for a flower, and then you suddenly find that nobody is even prepared to pay you 1/10th for exactly the same thing, well, that's not the situation you want to be in. 

[00:20:25] Luckily for the Dutch in the 17th Century, the people who found themselves in that situation seemed to be the already wealthy, who could afford to lose large amounts of money. 

[00:20:37] So how can you avoid losing vast amounts of money in a speculative bubble? 

[00:20:45] Well, I think we both know the answer to that. 

[00:20:48] You avoid joining the race in the first place.

[00:20:54] Okay then that is it for today's episode. 

[00:20:58] I guess the moral of the story is pretty easy. 

[00:21:01] If you ever hear about anything that the price can only go up well, you know, to take that with a very large pinch of salt

[00:21:10] As always, I'd love to know what you thought of the show.

[00:21:14] Have there ever been any speculative bubbles in your country about things that the rest of the world might not be aware of? 

[00:21:22] What do you think of the people who paid six figure sums for tulip bulbs

[00:21:27] I'd love to know. 

[00:21:28] You can email hi 'hi' @leonardoenglish.com. 

[00:21:33] And as a final reminder, for those of you looking for the transcript and key vocabulary, then you should head to Leonardoenglish.com.

[00:21:42] You can find all of the transcripts and key vocabulary for every single episode plus all of the bonus episodes, which you can't find anywhere else. 

[00:21:52] You've been listening to English Learning for Curious Minds by Leonardo English. 

[00:21:57] I'm Alastair Budge, you stay safe and I'll catch you in the next episode.

[END OF PODCAST]

Continue learning

Get immediate access to a more interesting way of improving your English
Become a memberUpgrade to Learner membership
Already a member? Login

[00:00:04] Hello, hello, hello, and welcome to English Learning for Curious Minds by Leonardo English. 

[00:00:10] The show where you can listen to weird and wonderful stories and learn fascinating things about the world at the same time as improving your English. 

[00:00:21] I'm Alastair Budge. 

[00:00:23] Today we are going to be talking about tulip mania, the tulip bubble, when flowers cost more than houses.

[00:00:33] If you have never heard of the tulip bubble before, well you are in for a treat

[00:00:39] And if you had heard about it but can't quite remember much, well, don't worry. 

[00:00:45] In today's podcast, we are going to talk about how it got to the stage that one single bulb of a tulip was reportedly worth the same as a large townhouse on Amsterdam's grand canal.

[00:01:02] Before we get right into that, though, let me just remind those of you listening to this podcast on whatever podcast app you might be listening to it on, that you can get a copy of the transcript and key vocabulary for the podcast over on the website, which is Leonardoenglish.com. 

[00:01:20] If you are looking for a quicker, more interesting way to improve your English, then having the transcript and key vocabulary in front of you is very helpful.

[00:01:30] Not only will it help you follow along with the podcast, but you'll also be able to learn new words and phrases far more quickly than you would do just by listening alone. 

[00:01:43] So go and check that out. It's at Leonardoenglish.com. 

[00:01:48] Right then tulip mania or the tulip bubble. 

[00:01:54] Let's just start with some quick definitions. 

[00:01:59] A tulip, for those of you who aren't aware, is a brightly coloured flower. 

[00:02:05] They are normally red, pink, yellow or white. 

[00:02:09] You'd definitely recognise one if you saw it. 

[00:02:12] Nowadays, they are relatively common and you can find them pretty inexpensively, they are generally quite cheap. 

[00:02:22] However, in the 1600s in Holland, they were anything but.

[00:02:29] From their introduction to Europe in the late 16th century, the price of a tulip bulb, that part of the plant from which the flower grows, the price of tulip bulbs increased dramatically until February, 1637, where there was a spectacular collapse in the price.

[00:02:54] It is said that at the height of tulip mania, the price of a single bulb, one single tulip bulb could be up to 5,200 guilders. 

[00:03:08] Now, the guilder was the currency in Holland at the time, and I would imagine that me just saying 5,200 guilders doesn't mean very much to you. 

[00:03:19] It's not very helpful. 

[00:03:21] So let's put it in context.

[00:03:23] That is about 20 times the annual salary of a skilled worker, such as a carpenter

[00:03:31] It's five times what Rembrandt charged for a painting. 

[00:03:37] And in today's equivalent, it's probably about a million dollars. 

[00:03:42] And that's all for a single bulb of a plant which you can probably buy now for well under a dollar.

[00:03:52] So I guess the question that you might have would be why and how did they become so expensive? 

[00:04:03] Yes, it's quite a beautiful flower, but at the end of the day, it's just a flower. 

[00:04:10] Why would anyone pay so much for one? 

[00:04:14] Well, yes, it's obviously a huge amount of money, but on one level it's not completely, completely mad.

[00:04:23] Firstly, the price of anything is made up of a few factors

[00:04:30] For example, how much it costs to produce, how many of them exist, and how many people want one. 

[00:04:39] Obviously if something is very rare, lots of people want it, well, it's likely to have a high price. 

[00:04:47] And if the supply of something is limited, if there aren't that many of them in existence, then the more that are sold, the fewer there are for people to buy.

[00:05:01] And so the more people are willing to pay to buy one, therefore, the fewer there are, and you can see that the circle continues. 

[00:05:10] If people see that the price of something is rising and they think that they can make a quick buck, they can make some quick money by buying something and then selling it to someone for more, even if they have no need for it, well, that's all well and good for a period of time. 

[00:05:31] And tulips in the 1600s in Holland, they ticked a lot of the boxes for something that should be expensive. 

[00:05:40] They were in pretty short supply and they were in very high demand. 

[00:05:48] They were coveted, they were highly desired by the middle and upper classes, for reasons that we'll talk about in a bit. 

[00:05:57] And the more that they were desired, the more people wanted them, the more the price went up and up and up. 

[00:06:05] And so more people tried to jump in on the game

[00:06:10] They wanted to join the craze and buy tulips in anticipation of being able to sell them for more later on.

[00:06:22] So to circle back a minute. 

[00:06:24] When I said it's not completely mad to pay a huge amount of money for something that we might now think is not worth a huge amount of money, it's not mad at all for me to buy a tulip bulb for $500,000 if I know that I can sell it to you for $600,000. 

[00:06:46] But this only works if the price of something continues to rise. 

[00:06:51] And as everyone knows, or everyone should know, there is no such thing as a guarantee that the price of something will continue to rise. 

[00:07:02] Anyone who tells you differently is either not a very good student of history or trying to trick you into doing something that you probably shouldn't do. 

[00:07:14] But let's get back to tulips.

[00:07:16] Why was it that tulip bulbs, of all possible things, became so expensive?

[00:07:23] Well, the tulip was introduced to Holland in the late 16th century, having been introduced to Europe by the Ottoman empire. 

[00:07:35] Tulips were different to all the other flowers that existed in Europe at the time. 

[00:07:43] They were bright and colourful, seemed very exotic, and they quickly became a hit with rich merchants who were flush with cash, who had made lots of money through trade.

[00:07:58] Holland was, at this time, one of the richest countries in the world, after gaining independence from Spain. 

[00:08:07] It had become a centre of world trade. 

[00:08:11] Huge fortunes were made, many merchants and their investors, their backers, many became fantastically rich and with all this money, they wanted a way to show off their wealth, to flaunt their wealth. 

[00:08:29] Tulips, as a new and exotic flower, became very desirable with these rich merchants. 

[00:08:40] And some particularly rare tulips became incredibly sought after, incredibly wanted by these merchants. 

[00:08:49] Specifically, there was one called a broken tulip, which produced flowers with stripes on it.

[00:08:59] This was considered the most beautiful of all the tulips, and of course, it came with the largest price tag

[00:09:09] Now, you may not know much about how tulips actually grow. 

[00:09:14] I didn't know much about it either, and I'm not an avid gardener, so I'll try to keep this simple. 

[00:09:22] Tulips can grow both from bulbs, and from seeds

[00:09:27] But a tulip bulb is only formed after 7 to 12 years. 

[00:09:34] When the bulb turns into a flower, the bulb disappears, but another kind of bulb is formed as well as several other things called buds, which can then be turned into bulbs

[00:09:51] So long story short - tulip bulbs take a long time to appear, but once you have one, you can turn that into several more bulbs

[00:10:03] And tulips only bloom, they only turn into flowers, twice a year, in May and September. 

[00:10:13] Outside of that period, they can be moved around, they can be transported, but they are pretty fragile

[00:10:21] The reason I'm talking here about how tulips grow is twofold: it's for two reasons. 

[00:10:29] Firstly, lots of people thought that they could basically buy one tulip bulb and turn it into multiple bulbs, which they could then sell on to other people. 

[00:10:42] This sounds like good advice in practice - it sounds like a good investment - but so long as the price doesn't go down.

[00:10:51] Secondly, the fact that tulip bulbs only flower, they only turn into flowers, twice a year meant that if you wanted to buy a tulip outside of that season, then what you had to do was sign a contract with someone who had a tulip bulb to buy a tulip at a certain point in the future.

[00:11:19] So to give you an example, if I had a tulip bulb that was going to flower in September, let's see, I could say to you that I will sell you the flower for X thousand dollars or X hundred dollars in four months' time. 

[00:11:36] It's basically what we know now as a futures contract and these tulip futures were some of the earliest forms of these now very popular financial instruments.

[00:11:52] So what happened was that prices rose and rose, and in around 1634 professional traders entered the tulip market. 

[00:12:04] People were buying and selling these tulip bulb contracts without the intention of ever actually taking ownership of the tulips.

[00:12:15] All they wanted to do was to buy a contract then to sell it on to someone else for more money. 

[00:12:25] And for lots of people, for a few years, they managed to do this quite successfully. 

[00:12:33] When the going is good, as they say, everyone makes money. 

[00:12:38] But there is this idea of the greater fool theory that the price of something is not determined by its intrinsic value, but by how much someone else is willing to pay for it.

[00:12:54] It doesn't matter how much you pay for something, as long as you can find someone who is prepared to pay more than you paid for it.

[00:13:03] However, the good times couldn't go on forever. 

[00:13:09] Tulip mania reached its peak in the winter of 1636 to 1637 when some bulbs were reportedly changing hands, they were being bought and sold, 10 times in a day. 

[00:13:25] And when we say changing hands here, remember we're not talking about physical tulips.

[00:13:33] This wasn't a load of people with gardening gloves, buying and selling plants. 

[00:13:39] It was people with pieces of paper, contracts to buy and sell tulips. 

[00:13:45] They rarely took physical possession of the actual tulip bulbs

[00:13:50] But didn't anyone say, ' Hey, this seems a little weird, why are we paying so much money for this?'

[00:13:59] Well, when everyone seems to be making money and there is this feeling that the price can't do anything but increase, people behave in strange ways. 

[00:14:11] All sense of rationality disappears. 

[00:14:15] It goes out the window

[00:14:17] But as with any bubble, there is one point where the price is just too high and something changes in the market to scare people and send the price crashing down.

[00:14:34] In Holland that point came in the year 1637. 

[00:14:40] Traders had been borrowing money in order to make tulip orders, promising to pay greater and greater sums in order to secure the most desirable tulip bulbs

[00:14:56] And towards the end of 1636 people had started to realise that tulips weren't actually that difficult to grow. 

[00:15:08] But the price continued to rise and rise.

[00:15:12] Then one morning in February, 1637 a tulip didn't sell for the first time at an auction and the market panicked

[00:15:25] People thought, 'hang on, this is strange. The price had been going up and up and up, and now if no one's buying this particular tulip, something must be wrong'. 

[00:15:37] So the price fell, and it fell some more and more and more and continued to fall sharply.

[00:15:43] It nose dived

[00:15:47] As there were so many people reportedly caught up in tulip mania, it was thought for a long time that there was a huge effect, a huge impact, on Dutch society. 

[00:16:00] Fortunes were lost, people went bankrupt, they lost all of their money, and people would throw themselves into canals in order to escape their debts.

[00:16:14] That was the traditional view of what happened. 

[00:16:18] However, there has been quite a lot of recent evidence that suggests that this conventional view of tulip mania is actually quite exaggerated, and it makes for a more interesting story than is really true. 

[00:16:36] The most famous account of tulip mania, of the tulip bubble, was in a book written by a Scottish author called Charles Mackay in 1841, 200 years later.

[00:16:50] Mackay never went to Holland. 

[00:16:53] He never consulted any of the primary sources, and it's now thought that he exaggerated it greatly. 

[00:17:02] Yes, the price of tulip bulbs did skyrocket

[00:17:06] However, it wasn't quite the scenario that he described.

[00:17:10] It wasn't quite this situation that every man and his dog was speculating on the price of tulips. 

[00:17:17] According to recent historians, the tulip bubble mainly affected the merchant class and the very wealthy. 

[00:17:28] Yes, there may have been people who lost very large amounts of money, but they were the kinds of people who could actually afford to lose large amounts of money.

[00:17:40] It doesn't really make it any less silly. 

[00:17:43] However, it wasn't quite the traditional view that the mania had gripped the entire country and destroyed the Dutch economy.

[00:17:54] Mackay, the author of the 'original', in inverted commas, original book about tulip mania also claimed that the rise of the plague, the black death, was a reason that people were willing to risk everything in order to make a fortune on tulips.

[00:18:13] If you might die tomorrow, well you may as well take a huge risk and try and make some money. 

[00:18:20] But most modern historians also dispute this claim. 

[00:18:25] They say that the only effect the plague may have had is that people had a bit more money because they had inherited money from relatives who might have died in theplague.

[00:18:39] So yes, Mackay exaggerated it quite a bit. 

[00:18:43] In any case though, it remains the classic example of a speculative bubble.

[00:18:51] But have we learned our lessons from tulip mania

[00:18:55] Well, modern history would suggest not really. 

[00:19:00] In the past 500 years since tulip mania, we have seen multiple new bubbles, from the South Sea Bubble in the 18th Century in the UK, the Mississippi Bubble at a similar time in France.

[00:19:14] Then more recently, we had the Dot Com bubble with internet companies at the end of the 20th century, and although many would debate this I'm sure, the meteoric rise and fall of Bitcoin and other cryptocurrencies over the past few years shows a lot of bubble characteristics

[00:19:37] In all of these cases, there are obviously people who managed to make huge fortunes, just vast amounts of money.

[00:19:46] But there are, of course, those who lost fortunes trying to ride the wave, blinded by this view that the price could only increase. 

[00:19:58] And all is well and good while the price keeps on rising. 

[00:20:02] But if you are one of the people who finds yourself having promised to pay a six figure sum for a flower, and then you suddenly find that nobody is even prepared to pay you 1/10th for exactly the same thing, well, that's not the situation you want to be in. 

[00:20:25] Luckily for the Dutch in the 17th Century, the people who found themselves in that situation seemed to be the already wealthy, who could afford to lose large amounts of money. 

[00:20:37] So how can you avoid losing vast amounts of money in a speculative bubble? 

[00:20:45] Well, I think we both know the answer to that. 

[00:20:48] You avoid joining the race in the first place.

[00:20:54] Okay then that is it for today's episode. 

[00:20:58] I guess the moral of the story is pretty easy. 

[00:21:01] If you ever hear about anything that the price can only go up well, you know, to take that with a very large pinch of salt

[00:21:10] As always, I'd love to know what you thought of the show.

[00:21:14] Have there ever been any speculative bubbles in your country about things that the rest of the world might not be aware of? 

[00:21:22] What do you think of the people who paid six figure sums for tulip bulbs

[00:21:27] I'd love to know. 

[00:21:28] You can email hi 'hi' @leonardoenglish.com. 

[00:21:33] And as a final reminder, for those of you looking for the transcript and key vocabulary, then you should head to Leonardoenglish.com.

[00:21:42] You can find all of the transcripts and key vocabulary for every single episode plus all of the bonus episodes, which you can't find anywhere else. 

[00:21:52] You've been listening to English Learning for Curious Minds by Leonardo English. 

[00:21:57] I'm Alastair Budge, you stay safe and I'll catch you in the next episode.

[END OF PODCAST]

[00:00:04] Hello, hello, hello, and welcome to English Learning for Curious Minds by Leonardo English. 

[00:00:10] The show where you can listen to weird and wonderful stories and learn fascinating things about the world at the same time as improving your English. 

[00:00:21] I'm Alastair Budge. 

[00:00:23] Today we are going to be talking about tulip mania, the tulip bubble, when flowers cost more than houses.

[00:00:33] If you have never heard of the tulip bubble before, well you are in for a treat

[00:00:39] And if you had heard about it but can't quite remember much, well, don't worry. 

[00:00:45] In today's podcast, we are going to talk about how it got to the stage that one single bulb of a tulip was reportedly worth the same as a large townhouse on Amsterdam's grand canal.

[00:01:02] Before we get right into that, though, let me just remind those of you listening to this podcast on whatever podcast app you might be listening to it on, that you can get a copy of the transcript and key vocabulary for the podcast over on the website, which is Leonardoenglish.com. 

[00:01:20] If you are looking for a quicker, more interesting way to improve your English, then having the transcript and key vocabulary in front of you is very helpful.

[00:01:30] Not only will it help you follow along with the podcast, but you'll also be able to learn new words and phrases far more quickly than you would do just by listening alone. 

[00:01:43] So go and check that out. It's at Leonardoenglish.com. 

[00:01:48] Right then tulip mania or the tulip bubble. 

[00:01:54] Let's just start with some quick definitions. 

[00:01:59] A tulip, for those of you who aren't aware, is a brightly coloured flower. 

[00:02:05] They are normally red, pink, yellow or white. 

[00:02:09] You'd definitely recognise one if you saw it. 

[00:02:12] Nowadays, they are relatively common and you can find them pretty inexpensively, they are generally quite cheap. 

[00:02:22] However, in the 1600s in Holland, they were anything but.

[00:02:29] From their introduction to Europe in the late 16th century, the price of a tulip bulb, that part of the plant from which the flower grows, the price of tulip bulbs increased dramatically until February, 1637, where there was a spectacular collapse in the price.

[00:02:54] It is said that at the height of tulip mania, the price of a single bulb, one single tulip bulb could be up to 5,200 guilders. 

[00:03:08] Now, the guilder was the currency in Holland at the time, and I would imagine that me just saying 5,200 guilders doesn't mean very much to you. 

[00:03:19] It's not very helpful. 

[00:03:21] So let's put it in context.

[00:03:23] That is about 20 times the annual salary of a skilled worker, such as a carpenter

[00:03:31] It's five times what Rembrandt charged for a painting. 

[00:03:37] And in today's equivalent, it's probably about a million dollars. 

[00:03:42] And that's all for a single bulb of a plant which you can probably buy now for well under a dollar.

[00:03:52] So I guess the question that you might have would be why and how did they become so expensive? 

[00:04:03] Yes, it's quite a beautiful flower, but at the end of the day, it's just a flower. 

[00:04:10] Why would anyone pay so much for one? 

[00:04:14] Well, yes, it's obviously a huge amount of money, but on one level it's not completely, completely mad.

[00:04:23] Firstly, the price of anything is made up of a few factors

[00:04:30] For example, how much it costs to produce, how many of them exist, and how many people want one. 

[00:04:39] Obviously if something is very rare, lots of people want it, well, it's likely to have a high price. 

[00:04:47] And if the supply of something is limited, if there aren't that many of them in existence, then the more that are sold, the fewer there are for people to buy.

[00:05:01] And so the more people are willing to pay to buy one, therefore, the fewer there are, and you can see that the circle continues. 

[00:05:10] If people see that the price of something is rising and they think that they can make a quick buck, they can make some quick money by buying something and then selling it to someone for more, even if they have no need for it, well, that's all well and good for a period of time. 

[00:05:31] And tulips in the 1600s in Holland, they ticked a lot of the boxes for something that should be expensive. 

[00:05:40] They were in pretty short supply and they were in very high demand. 

[00:05:48] They were coveted, they were highly desired by the middle and upper classes, for reasons that we'll talk about in a bit. 

[00:05:57] And the more that they were desired, the more people wanted them, the more the price went up and up and up. 

[00:06:05] And so more people tried to jump in on the game

[00:06:10] They wanted to join the craze and buy tulips in anticipation of being able to sell them for more later on.

[00:06:22] So to circle back a minute. 

[00:06:24] When I said it's not completely mad to pay a huge amount of money for something that we might now think is not worth a huge amount of money, it's not mad at all for me to buy a tulip bulb for $500,000 if I know that I can sell it to you for $600,000. 

[00:06:46] But this only works if the price of something continues to rise. 

[00:06:51] And as everyone knows, or everyone should know, there is no such thing as a guarantee that the price of something will continue to rise. 

[00:07:02] Anyone who tells you differently is either not a very good student of history or trying to trick you into doing something that you probably shouldn't do. 

[00:07:14] But let's get back to tulips.

[00:07:16] Why was it that tulip bulbs, of all possible things, became so expensive?

[00:07:23] Well, the tulip was introduced to Holland in the late 16th century, having been introduced to Europe by the Ottoman empire. 

[00:07:35] Tulips were different to all the other flowers that existed in Europe at the time. 

[00:07:43] They were bright and colourful, seemed very exotic, and they quickly became a hit with rich merchants who were flush with cash, who had made lots of money through trade.

[00:07:58] Holland was, at this time, one of the richest countries in the world, after gaining independence from Spain. 

[00:08:07] It had become a centre of world trade. 

[00:08:11] Huge fortunes were made, many merchants and their investors, their backers, many became fantastically rich and with all this money, they wanted a way to show off their wealth, to flaunt their wealth. 

[00:08:29] Tulips, as a new and exotic flower, became very desirable with these rich merchants. 

[00:08:40] And some particularly rare tulips became incredibly sought after, incredibly wanted by these merchants. 

[00:08:49] Specifically, there was one called a broken tulip, which produced flowers with stripes on it.

[00:08:59] This was considered the most beautiful of all the tulips, and of course, it came with the largest price tag

[00:09:09] Now, you may not know much about how tulips actually grow. 

[00:09:14] I didn't know much about it either, and I'm not an avid gardener, so I'll try to keep this simple. 

[00:09:22] Tulips can grow both from bulbs, and from seeds

[00:09:27] But a tulip bulb is only formed after 7 to 12 years. 

[00:09:34] When the bulb turns into a flower, the bulb disappears, but another kind of bulb is formed as well as several other things called buds, which can then be turned into bulbs

[00:09:51] So long story short - tulip bulbs take a long time to appear, but once you have one, you can turn that into several more bulbs

[00:10:03] And tulips only bloom, they only turn into flowers, twice a year, in May and September. 

[00:10:13] Outside of that period, they can be moved around, they can be transported, but they are pretty fragile

[00:10:21] The reason I'm talking here about how tulips grow is twofold: it's for two reasons. 

[00:10:29] Firstly, lots of people thought that they could basically buy one tulip bulb and turn it into multiple bulbs, which they could then sell on to other people. 

[00:10:42] This sounds like good advice in practice - it sounds like a good investment - but so long as the price doesn't go down.

[00:10:51] Secondly, the fact that tulip bulbs only flower, they only turn into flowers, twice a year meant that if you wanted to buy a tulip outside of that season, then what you had to do was sign a contract with someone who had a tulip bulb to buy a tulip at a certain point in the future.

[00:11:19] So to give you an example, if I had a tulip bulb that was going to flower in September, let's see, I could say to you that I will sell you the flower for X thousand dollars or X hundred dollars in four months' time. 

[00:11:36] It's basically what we know now as a futures contract and these tulip futures were some of the earliest forms of these now very popular financial instruments.

[00:11:52] So what happened was that prices rose and rose, and in around 1634 professional traders entered the tulip market. 

[00:12:04] People were buying and selling these tulip bulb contracts without the intention of ever actually taking ownership of the tulips.

[00:12:15] All they wanted to do was to buy a contract then to sell it on to someone else for more money. 

[00:12:25] And for lots of people, for a few years, they managed to do this quite successfully. 

[00:12:33] When the going is good, as they say, everyone makes money. 

[00:12:38] But there is this idea of the greater fool theory that the price of something is not determined by its intrinsic value, but by how much someone else is willing to pay for it.

[00:12:54] It doesn't matter how much you pay for something, as long as you can find someone who is prepared to pay more than you paid for it.

[00:13:03] However, the good times couldn't go on forever. 

[00:13:09] Tulip mania reached its peak in the winter of 1636 to 1637 when some bulbs were reportedly changing hands, they were being bought and sold, 10 times in a day. 

[00:13:25] And when we say changing hands here, remember we're not talking about physical tulips.

[00:13:33] This wasn't a load of people with gardening gloves, buying and selling plants. 

[00:13:39] It was people with pieces of paper, contracts to buy and sell tulips. 

[00:13:45] They rarely took physical possession of the actual tulip bulbs

[00:13:50] But didn't anyone say, ' Hey, this seems a little weird, why are we paying so much money for this?'

[00:13:59] Well, when everyone seems to be making money and there is this feeling that the price can't do anything but increase, people behave in strange ways. 

[00:14:11] All sense of rationality disappears. 

[00:14:15] It goes out the window

[00:14:17] But as with any bubble, there is one point where the price is just too high and something changes in the market to scare people and send the price crashing down.

[00:14:34] In Holland that point came in the year 1637. 

[00:14:40] Traders had been borrowing money in order to make tulip orders, promising to pay greater and greater sums in order to secure the most desirable tulip bulbs

[00:14:56] And towards the end of 1636 people had started to realise that tulips weren't actually that difficult to grow. 

[00:15:08] But the price continued to rise and rise.

[00:15:12] Then one morning in February, 1637 a tulip didn't sell for the first time at an auction and the market panicked

[00:15:25] People thought, 'hang on, this is strange. The price had been going up and up and up, and now if no one's buying this particular tulip, something must be wrong'. 

[00:15:37] So the price fell, and it fell some more and more and more and continued to fall sharply.

[00:15:43] It nose dived

[00:15:47] As there were so many people reportedly caught up in tulip mania, it was thought for a long time that there was a huge effect, a huge impact, on Dutch society. 

[00:16:00] Fortunes were lost, people went bankrupt, they lost all of their money, and people would throw themselves into canals in order to escape their debts.

[00:16:14] That was the traditional view of what happened. 

[00:16:18] However, there has been quite a lot of recent evidence that suggests that this conventional view of tulip mania is actually quite exaggerated, and it makes for a more interesting story than is really true. 

[00:16:36] The most famous account of tulip mania, of the tulip bubble, was in a book written by a Scottish author called Charles Mackay in 1841, 200 years later.

[00:16:50] Mackay never went to Holland. 

[00:16:53] He never consulted any of the primary sources, and it's now thought that he exaggerated it greatly. 

[00:17:02] Yes, the price of tulip bulbs did skyrocket

[00:17:06] However, it wasn't quite the scenario that he described.

[00:17:10] It wasn't quite this situation that every man and his dog was speculating on the price of tulips. 

[00:17:17] According to recent historians, the tulip bubble mainly affected the merchant class and the very wealthy. 

[00:17:28] Yes, there may have been people who lost very large amounts of money, but they were the kinds of people who could actually afford to lose large amounts of money.

[00:17:40] It doesn't really make it any less silly. 

[00:17:43] However, it wasn't quite the traditional view that the mania had gripped the entire country and destroyed the Dutch economy.

[00:17:54] Mackay, the author of the 'original', in inverted commas, original book about tulip mania also claimed that the rise of the plague, the black death, was a reason that people were willing to risk everything in order to make a fortune on tulips.

[00:18:13] If you might die tomorrow, well you may as well take a huge risk and try and make some money. 

[00:18:20] But most modern historians also dispute this claim. 

[00:18:25] They say that the only effect the plague may have had is that people had a bit more money because they had inherited money from relatives who might have died in theplague.

[00:18:39] So yes, Mackay exaggerated it quite a bit. 

[00:18:43] In any case though, it remains the classic example of a speculative bubble.

[00:18:51] But have we learned our lessons from tulip mania

[00:18:55] Well, modern history would suggest not really. 

[00:19:00] In the past 500 years since tulip mania, we have seen multiple new bubbles, from the South Sea Bubble in the 18th Century in the UK, the Mississippi Bubble at a similar time in France.

[00:19:14] Then more recently, we had the Dot Com bubble with internet companies at the end of the 20th century, and although many would debate this I'm sure, the meteoric rise and fall of Bitcoin and other cryptocurrencies over the past few years shows a lot of bubble characteristics

[00:19:37] In all of these cases, there are obviously people who managed to make huge fortunes, just vast amounts of money.

[00:19:46] But there are, of course, those who lost fortunes trying to ride the wave, blinded by this view that the price could only increase. 

[00:19:58] And all is well and good while the price keeps on rising. 

[00:20:02] But if you are one of the people who finds yourself having promised to pay a six figure sum for a flower, and then you suddenly find that nobody is even prepared to pay you 1/10th for exactly the same thing, well, that's not the situation you want to be in. 

[00:20:25] Luckily for the Dutch in the 17th Century, the people who found themselves in that situation seemed to be the already wealthy, who could afford to lose large amounts of money. 

[00:20:37] So how can you avoid losing vast amounts of money in a speculative bubble? 

[00:20:45] Well, I think we both know the answer to that. 

[00:20:48] You avoid joining the race in the first place.

[00:20:54] Okay then that is it for today's episode. 

[00:20:58] I guess the moral of the story is pretty easy. 

[00:21:01] If you ever hear about anything that the price can only go up well, you know, to take that with a very large pinch of salt

[00:21:10] As always, I'd love to know what you thought of the show.

[00:21:14] Have there ever been any speculative bubbles in your country about things that the rest of the world might not be aware of? 

[00:21:22] What do you think of the people who paid six figure sums for tulip bulbs

[00:21:27] I'd love to know. 

[00:21:28] You can email hi 'hi' @leonardoenglish.com. 

[00:21:33] And as a final reminder, for those of you looking for the transcript and key vocabulary, then you should head to Leonardoenglish.com.

[00:21:42] You can find all of the transcripts and key vocabulary for every single episode plus all of the bonus episodes, which you can't find anywhere else. 

[00:21:52] You've been listening to English Learning for Curious Minds by Leonardo English. 

[00:21:57] I'm Alastair Budge, you stay safe and I'll catch you in the next episode.

[END OF PODCAST]