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tulips
From: David Farber <dave () farber net>
Date: Mon, 29 Sep 2008 09:38:54 -0400



Begin forwarded message:

From: "Dave Wilson" <dave () wilson net>
Date: September 29, 2008 9:00:00 AM EDT
To: "David Farber" <dave () farber net>
Subject: tulips

I decided to reread the chapter on the Dutch tulip mania of the 17th century from a 19th century tome, "Extraordinary Popular Delusions and the Madness of Crowds" by an English journalist, Charles Mackay (note that modern free market thinkers believe this account is BS, because there can by definition be no speculative manias in a free market). Anyway, I was struck by this paragraph, which details what happened after a few years when the music stopped and the price of tulip bulbs stopped going up (the subsequent decline marks, coincidentally or not, the end of the Netherlands as a world power):

" At last, however, the more prudent began to see that this folly could not last for ever. Rich people no longer bought the flowers to keep them in their gardens, but to sell them again at cent. per cent. profit. It was seen that somebody must lose fearfully in the end. As this conviction spread, prices fell, and never rose again. Confidence was destroyed, and a universal panic seized upon the dealers. A had agreed to purchase ten Sempers Augustines from B, at four thousand florins each, at six weeks after the signing of the contract. B was ready with the flowers at the appointed time; but the price had fallen to three or four hundred florins, and A refused either to pay the difference or receive the tulips. Defaulters were announced day after day in all the towns of Holland. Hundreds who, a few months previously, had begun to doubt that there was such a thing as poverty in the land, suddenly found themselves the possessors of a few bulbs, which nobody would buy, even though they offered them at one quarter of the sums they had paid for them. The cry of distress resounded everywhere, and each man accused his neighbour. The few who had contrived to enrich themselves hid their wealth from the knowledge of their fellow-citizens, and invested it in the English or other funds. Many who, for a brief season, had emerged from the humbler walks of life, were cast back into their original obscurity. Substantial merchants were reduced almost to beggary, and many a representative of a noble line saw the fortunes of his house ruined beyond redemption."




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