Stand and Deliver!!!

“Stand and Deliver!! I want you to hand over all the lupins you've got”.
“What do you mean,lupins?”
“You mean the bloody flower,lupin?”

Perhaps some of you will recognize the “Dennis Moore” sketch from Monty Python’s Flying Circus where the highwayman steals from the rich to give to the poor but instead of riches, he steals lupins. But how many are familiar with the fact that this could be based on true story? The Tulip craze in the Netherlands in the 1630's reduced this country’s economy into a shambles as aristocrats as well as peasants were caught up in an orgy of trading, buying and selling of tulip bulbs. Yes, that is right, the flower.

In those days the tulip was a very rare commodity, originally imported from Turkey only for the very rich and affluent. If the tulip had stayed within the reaches of that minority, the devastation that it caused would never have been as wide spread as it was. But when the Smiths’ chase the Joneses as they have throughout history, the status symbols of the rich become all too alluring for the general public. To own a tulip became the status symbol to have, it showed that you had “arrived.” Bling for the 17th Century, as it were.

Tulips were cross-bred, cross-pollinated and interbred in almost any manner to produce a more unique display of color or colors. Stripes, meaning a tulip with two colors, were the most desired but even the single colored ones were still highly collected by the masses. The mere owning of a tulip bulb was important for one’s social standing. What used to be available only from horticulturalists and estate gardeners in major cities now had traveling salesmen roaming the countryside hawking their bulbs. What even added to the temptation to get into the tulip market was that the flowers reproduced themselves allowing growers to then sell the offsets to the drooling public who demanded them.

Historically, the physical bulb was what had always been traded, a “you bought it and now you plant it” approach and this was usually all done within the appropriate season for planting or growing. But due to the demand people began to “sell” future offsets of their plants. This would give a buyer a commitment to take delivery of a tulip bulb before it had been grown, thereby creating a “futures” market for the plant. This lead to the creation of a marketplace where the futures of the plant were traded and not the physical bulb. Sometimes this option to buy a bulb would be traded for profit before taking delivery of the bulb. That is, it created a marketplace where “negotiable piece of paper with a notional delivery date” ruled.

Trading became a mania with prices for a single bulb reportedly exceeding 200 times the price of a pig. This national obsession then started to affect other industries as the citizens focused all their energy and capital into the tulip market ignoring basic farming and industry. That in itself would have a lingering effect of the economy for years following. As demand outstripped supply, the prices for tulips were reaching an ever increasing level and no one gave a moments thought to the inevitable price ceiling.

The end came in February of 1637 when the major growers and the professional speculators, as opposed to the inexperienced traders, realized that prices could no longer continue to rise and began a major sell off of their holdings. Within days the price had fallen through the floor and any paper stock was virtually worthless. Recriminations were thrown back and forth between the government and the speculators who were blamed for the collapse of the market. Thousands of people who had previously enjoyed a rapid rise in fortune were suddenly facing financial ruin. The growers blamed the masses for their reckless greed and turned to the government for financial recompense. They claimed the horticultural industry would not survive without some financial aid. So in 1638 the government of the day awarded the growers compensation equaling approximately 5% of the paper commitments made to them in 1636.

At the end of this economic boom and bust, lives and fortunes were ruined. The get rich scheme that propelled many to dabble in the stock market and lead them to more wealth than they had ever experienced before also brought them crashing back to earth in many cases costing them their homes, businesses and security. Many people put all they had into this, more than they should have ever invested. Almost to a person they broke the cardinal rule of thumb of investing in any stock market, never invest more than you can afford to lose.

Sounds terrifyingly similar to today, doesn’t it?