Explaining the timing of tulipmania's boom and bust: historical context, sequestered capital and market signals

Abstract

Framing tulipmania in terms of sequestered capital – capital whose quantities, usages and future yields are hidden from market participants – offers a richer and more straightforward explanation for this famous financial bubble than extant alternatives. Simply put, the underground planting of the tulip bulbs in 1636 blindfolded seventeenth-century Dutch speculators regarding the planted quantities and their development and future yields. The price boom began in mid November 1636, coinciding with the time of planting. The price collapse occurred in the first week of February 1637, coinciding with the time of bulb sprouting – signaling bulb quantities, development and future yields. Also consistent with our explanation is the initial price collapse location, in the Dutch city of Haarlem, where temperature and geography favored early sprouting and sprout visibility.

The Impact of New-Product R&D on the Circular Flow

“…(United States Census Bureau, 2018). The case of the Dutch Tulipmania (1636-1637), as recently explained in terms of sequestered capital by McClure and Thomas (2017), illustrates how the Schumpeterian swarming discussed in this article applies to a famous historical financial bubble.…”

“… 6. For more detail on the theory of sequestered capital see McClure and Thomas (2018); for an empirical investigation verifying the veracity of the sequestered capital theory, see McClure and Thomas (2017). …”

Quantitative Modeling of Financial Contagion: Unraveling Market Dynamics and Bubble Detection Mechanisms

“…Tulipmania represented a period of speculative frenzy that occurred in the Netherlands between 1636 and 1637 when the prices of tulip bulbs reached extremely high levels, followed by a rapid collapse (Garber 1989). This event unfolded during a period of economic growth in the Netherlands when trade and financial innovations were in full swing (McClure and Thomas 2017). Once introduced to the Netherlands, rare varieties of tulips quickly became highly popular and were regarded as a symbol of social status.…”

A Journey Through the History of Commodity Derivatives Markets and the Political Economy of (De)Regulation

“…12 A losing party could compensate the winning party for the difference between the delivery price and the spot price at the time of settlement. 13 The tulips were introduced from Constantinople to Holland in the middle of the 16th century by the Ambassador of the Holy Roman Emperor, Ogier Ghislain de Busbecq (McClure and Thomas, 2017;Dash, 1999). By 1634, tulips' popularity grew significantly among the rich so that 'it was deemed a proof of bad taste for any man of fortune to be without a collection of them.'…”