Tulip mania

Question 1

When did the tulip mania start to form?

Answer 1

Beginning of the 17th century (1600-talet), 1620-30 ish.

Question 2

Why did the tulip mania form in the United Provinces (Netherlands)?

Answer 2

Because of accumulated wealth, Amsterdam thrived and was the center of commerce, finance manufacture and art in Europe. Therefore, wealthy people started to import and trade bulbs as collectors items.

Question 3

Why did Netherlands become such wealthy?

Answer 3

Following the revolt from the Spanish empire (mid 16th century), Netherlands became a migrant hub of talented craftsmen and merchants. Also, Amsterdam became the gateway to Central Europe during the 17th century war, which resulted in large trade with Americas, southern Asia and the Far East. Also, following the trade, The Bank of Amsterdam was the largest bank of the 17th century across Europe.

Question 4

Which was the first company to issue common stock that was tradable on the stock exchange?

Answer 4

Dutch East India Company. Tradable on the Amsterdam stock market, the company could finance long-distance trade. Also, the exchange boosted the futures market in commodities (timber, spices and hemp etc.) and securities.

Question 5

What was the three most important “steps” in the development of the tulip market after the florist entered the trade?

Answer 5

1. The object of trade went from the bulb itself, to instead become the forward contract on bulbs.
2. The unit of bulb trading became standardized – from having been priced individually, they became priced by weight.
3. The credit system. Seller extended personal credit, known as IOUs. So the trade, mostly, didn’t involve any cash, besides wine and grief money, and was eventually called “wind trade”

Question 6

What was two explanations to why the dutch became so attracted to the bulb trade?

Answer 6

1. Their attraction to gambling
2. The fatalistic attitude following the bubonic plague

Question 7

What was the name of the most expensive traded (documented) bulb in February 1637?

Answer 7

1. Admirael
2. xxx
   3.xxx

Question 8

How did the burst of the bubble evolve?

Answer 8

In early February 1637, the bulb contracts didn’t find any buyers at an auction. News spread across the market and holders of bulb contracts rushed to unload holdings. That made the price and market collapse, which eventually stabilized when negotiations led to Haarlem city councils decision to cancel all contracts at 3.5% of the original sale price.

Question 9

Why did the bulb trade have little effect on the overall economy? (Give two explanations)

Answer 9

1. Most florist had the trade as side activity, which meant that the crash didn’t result in any widespread bankruptcies.
2. The credit used in the market was not mainly coming from financial institutions, but from the participants in the trading itself. The credit losses were therefore isolated in the bulb market, and largely offset by dynamic of owned and owed debt by the participants.