From Bulbs to Bonds: Dutch ‘Tulipmania’ and the creation of the economic bubble

The term ‘bubble’ is not a newfound modern concept, nor a term that has been left in the past.  Present within economic history for some 400 years, such bubble events have become an entrenched aspect of free market economic systems, brought by speculation and optimism. As modern humanity strives for innovation, (and higher profits), it is often found that a rapid expansion of an up-and-coming industry will bring an overconcentration of efforts into that sector, as seen in the 2000 ‘dot-com bubble’ collapse – which caused the NASDAQ (National Association of Securities Dealers Automated Quotations) to fall 75% and the collapse of hundreds of internet companies.¹ Recovery from a bubble bursting is generally slow. For example, it took twenty-six years for Intel to recover its stock prices to the highs in the 2000s after the dot-com burst.

Leading economic historian Charles P. Kindleberger categorised an economic bubble as a rapid acceleration in the price and uptake of an asset and the eventual reversal (known as a bubble ‘pop’ or collapse). Dutch ‘tulipmania’is widely considered to be the first instance of this phenomenon; a period where the price of certain rare tulip bulbs became comparable to a canal house in Amsterdam. Emerging as a trend during a boom of popular culture in the thriving Dutch republic, tulips became integrated into Dutch life, appearing in paintings, songs and prose as the affluent sought to expand their collections. Often mocked in works from both the wealthy and lower classessuch as in Figure 1, a satirical painting which depicts speculative bulb traders as monkeys wearing clothes, the craze became a mania in the 1630s, when ‘broken bulbs’ infected with disease started producing incrediblepatterned tulips, which ironically became some of the most sought-after assets in the Netherlands, and created a lucrative trade which would go on to spiral out of control.

Figure 1 "Allegory on Tulipmania" (c. 1640) by artist Jan Brueghel the Younger.

Given the cultural importance of the tulip, as well as the newfound collectability of rarer bulbs, demand increased rapidly. Broken bulbs became the core driver of the high prices and are commonly associated as the cause of the high market prices. In fact, single colour breeder bulbs were only valued on their likelihood to break. This was an unpredictable event, and some characterised tulipmania as a gamble.

In terms of trading, the bubble was largely fuelled by a type of trading known as ‘futures’. This is a system where a buyer agrees to purchase an asset at a future date at a previously agreed price (bound by a contract). This allows the buyer to purchase the bulbs at a desirable time, while reducing the risk of it costing more later – although the downside is that the price of the bulb could instead fall, and the buyer subsequently overpays. However, this was not what was being practiced in the Netherlands. Instead, spurred by speculation brought by a demand in bulbs from France, over the period 1634-37, traders would meet in ‘colleges’ (taverns) and essentially make large bets with each other on the potential future price of an asset that neither of them owned, nor planned on owning, with the loser paying the difference when the contract expired. This was a practice known as windhandel,meaning ‘wind trade’, as the ‘buyer’ did not have the full amount that of money for the bulb, and the ‘seller’ didn’t have the bulb themselves. There were no capital requirements to engage in these trades, meaning that many traders were making promises of money that they did not have. It was this speculative system in which high, unenforceable bets were made on the price of rare bulbs, causing the bubble to spiral, with estimates suggesting that the most prized bulbs, such as the famous Semper Augustus, would be worth tens of thousands of dollars in today's money. It became clear that the system was out of control.

By February 1637, the bubble had popped. It is unclear what precisely caused this to happen, but it is theorised that it was largely caused by a massive settlement of contracts that were unable to be honoured, causing a lack of faith, and subsequent crash in prices. Historians, such as Garber, write that a supposed suspension on contracts due to settle was coming. Seeing as the Dutch courts would refuse to make the contracts binding, there were little that sellers could do. Prices of the most lucrative bulbs, such as the aforementioned Semper Augustus, became as low as 1/200 of their peak, fully demonstrating the scale of this market’s crash. Overall, while some of the first accounts of the event portrayed this as devastating for the Dutch economy, the main damage was done to Dutch trust in markets. Nonetheless, the impact of human nature’s greed and ambition in speculative trading behaviours had been exhibited at a mass scale.

To return to Kindleberger’s definition of a bubble; tulipmania is a textbook example. The Dutch tulip market had spiralled out of control, and had quickly reversed, luckily inflicting rather limited damage. Later instances, such as the dot-com bubble burst, would go on to prove how dangerous a speculative system of greed can really be, alongside the destructive potential of a seventeenth-century system today. In an age of bubble fears, particularly with AI investment being at an all-time high, and some analysts arguing that bubble-like patterns are beginning to reemerge, it is as important now than ever that we remain vigilant so that the mistakes of the past can stay there.

Bibliography

Primary Sources:

Brueghel the Younger, Jan, Painting “Allegory on Tulipmania”, c.1640, oil on panel, Frans Hals Museum, Haarlem, < https://tulipfestivalamsterdam.com/painting-allegory-on-tulipmania-by-jan-brueghel-the-younger-1640/> [accessed 25 June 2026]

Secondary sources:

Barlevy, Gadi, 'Why Bubbles Occur: Revisiting the Rationality Debate', Economic Perspectives, 3 (2025) <https://www.chicagofed.org/publications/economic-perspectives/2025/3> [accessed 24 June 2026].

Garber, Peter M., 'Famous First Bubbles', Journal of Economic Perspectives, 4.2 (1990), pp.35–54.

——, 'Tulipmania', Journal of Political Economy, 97.3 (1989), pp.535–60.

Goldgar, Anne, Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age (University of Chicago, 2007).

Hayes, Adam, 'Tulipmania: About the Dutch Tulip Bulb Market Bubble', Investopedia, 30 (2026) <https://www.investopedia.com/terms/d/dutch_tulip_bulb_market_bubble.asp> [accessed 24 June 2026].

Kindleberger, Charles P., Manias, Panics and Crashes: A History of Financial Crises (Palgrave Macmillan, 2005).

Mackay, Charles, Extraordinary Popular Delusions and the Madness of Crowds (Harriman House, 2003).

Petersen, Deborah, 'A Brief History of Financial Bubbles', Stanford Graduate School of Business, 24 November 2014, <https://www.gsb.stanford.edu/insights/brief-history-financial-bubbles> [accessed 24 June 2026].