Money,
Read Through Events

Starting with one incident — The day one share at one dollar became 97 cents

On September 16, 2008, in a certain American investment trust, the price, which was supposed to be maintained at one dollar per share, dropped to 97 cents. The difference was 3 cents. The day before, the investment bank Lehman Brothers had filed for bankruptcy. This was in the midst of the 2008 global financial crisis, an event known in Japan as the 'Lehman Shock'. Tracing why these 3 cents held such great significance leads us to the financial crisis that had begun more than a year earlier and to home loans in America.

You can read the continuation in Chapter 8, "The Global Financial Crisis, 2007–09". From the incident page (The Day One Share at One Dollar Became 97 Cents), you can also read the same story from the beginning.

Even without memorizing the terms for types and mechanisms, each chapter can be read as a single story. In the 'Summary in Three Points' at the end of each chapter, please check what happened, why it spread, and how it affected daily life.

Events do not repeat. Questions return.

Incidents in financial history change shape as they are retold. A satire printed the week after a collapse is copied a century later into a book on the history of inventions, from that book into a 19th-century popular work, and from there into a 20th-century textbook. With each retelling, the numbers are rounded, the cast of characters grows, and the moral becomes shorter. This book traces the path in reverse: from textbook to popular work, from popular work to satire, and from satire to the notary's records.

The reading approach is divided into four sections. What happened (dates, places, and verifiable numbers). How the money moved (what was sold, who paid whom, and the nature of collateral and settlement). What the sources tell us (which historical sources survive and which do not). Verifying common explanations (the origins of anecdotes and the extent to which they are supported by sources). Depending on the incident, we may add connections to the present and the limits of comparison.

The methods from Textbook No. 1, "Is It Really True? Checking History" (what to believe and what to doubt), and No. 15, "Reading Articles and Ledgers" (opening a case file in the archives to pose questions and find answers), form the foundation of this book. The incident pages ("Money, Read Through Events") can be read on NOMISMA, and the historical sources can be opened from the archives to their originals.

Tulip Mania 1636–37

1636–37 / Dutch Republic / Mania/Bubble

BIG QUESTION To what extent was the tulip bubble real?

What happened

In the province of Holland in the 1630s, the price of tulip bulbs multiplied dozens of times over a few years, and in early February 1637, buyers disappeared. Many of the transactions were forward contracts concluded in taverns during the winter, while the bulbs were still in the ground. What collapsed was not so much the price of the flowers as the mountain of these contracts.

The popularity of the flower itself had been ongoing for 40 years before the incident. In Leiden, Hoogerlande grew them in his garden in 1590, and from 1593, the botanist Clusius propagated them in the same location. In 1614, Roemer Visscher satirized those who squandered money on tulips, adding the phrase, "A fool and his money are soon parted." The chronicler Wassenaer wrote that in 1623, one Semper Augustus bulb sold for 1,000 guilders, and an offer of 12,000 guilders for 10 bulbs was refused. The next year, one bulb was 1,200 guilders, and in 1625, the owner refused offers of 2,000 and 3,000. At this time, given the prices, buyers were limited to wealthy enthusiasts.

In 1633, the chronicle of Hoorn wrote that the trade had become a "frenzy." From around December 1634, bulbs were priced by weight, with a unit price per *aas* (1/20th of a gram) determined for each variety. Notarial records show that one *aas* of the Gouda variety was 30 stuivers in December 1634, 2 guilders and 2 stuivers in the winter of 1635-1636, and 3 guilders and 15 stuivers in May 1636.

From the autumn to winter of 1636, gatherings called 'collegies' formed in taverns in various places, and people who did not own bulbs also began to buy and sell paper contracts. Common varieties that had been ignored until then were sold in bulk units of pounds or 1,000 aasen. The price of one pound of a common variety called Switser, according to notarial records, moved from 120 guldens on January 15, 1637 (asking price, refused), to 385 on January 23, 1,400 on February 1, and 1,500 on February 2.

On Tuesday, February 3, in a Haarlem tavern, a man who offered one pound of Croonen or Switser for sale with a premium was sold three times as the price dropped to 1,250, 1,100, and then 1,000 guldens. An eyewitness recorded the events of the same day in a dialogue-form pamphlet. The next day, trading stopped, and it was written that 'everyone looked at each other's faces.' However, two days later, on February 5, an auction was held in Alkmaar for the orphans of the deceased innkeeper of the shooting guild hall, where about 70 bulbs and 27 lots of 1,000 aasen were sold for a total of 90,000 guldens. This list of sales was printed and cited by both defenders and attackers of the speculation. On February 9, one pound of Switser was back at 1,100 guldens.

The subsequent settlement process went back and forth between the florists, the cities, and the province. On February 7, 36 florists in Utrecht chose representatives, and on February 24, representatives from 10 cities made an agreement before a notary in Amsterdam. The agreement stipulated that sales made up to November 30, 1636, were to be honored, while subsequent contracts could be canceled during March if the buyer paid 10% of the price. The Amsterdam representatives did not sign, and it was not binding. On March 7, the city of Haarlem banned the sale of satirical songs and documents and, on the same day, recommended that all transactions since the planting in October of the previous year be nullified. The States of the province, upon petition from the cities, consulted the Court of Holland. On April 25, the Court, citing a lack of information, reported back, entrusting the city authorities to have the parties reach a settlement. In the meantime, sellers could, after giving notice, hold or sell the bulbs at the buyer's risk, and all contracts were to be suspended. The States of the province passed a resolution to this effect on April 27.

Most disputes were settled between the parties themselves for 5 to 10 percent of the price. For the remaining disputes, the city of Haarlem established a five-person commission in January 1638. On May 28, it gave binding force to the commission's rulings and set a fixed cancellation fee at 3.5% of the contract price. The sellers kept the bulbs. This is the last public document concerning the 'wind trade'.

How the money moved

What was sold were bulbs. However, during the winter, the bulbs were in the ground, and they could only be dug up and delivered in May or June. Payment was also exchanged at that time. Therefore, those who bought on paper and sold on paper after the summer of 1636 did not lose cash even when prices collapsed in February. The ones in trouble were those waiting for payment and those who had promised to take delivery but lost their buyers for resale.

Expensive varieties were sold one bulb at a time, with their weight declared. Since weight determined the price, it was difficult to sell bulbs one did not possess. However, common varieties were sold by the pound or in units of 1,000 aas, a form that allowed contracts to be circulated without the backing of physical goods. A document remains in which a contemporary flower merchant himself lamented this "selling by aas and pounds."

At tavern gatherings, there were two ways of selling. There was the "in the boards" method, where the variety one wished to buy was written on a board and two arbitrators set the price, and the "in the round" method, where the seller placed a prize of a few stuivers in a circle and put it up for auction. In either case, the buyer paid "wine money" of half a stuiver per guilder, up to a maximum of 3 guilders. This wine money was spent on food and drink at the gathering. Neither the clerk nor the arbitrators verified whether the seller actually possessed the bulbs. A character in a dialogue-style pamphlet, a weaver who became a flower merchant, claims to have made 60,000 guilders in four months, and when asked if he had received it, replies, "Only people's handwritten notes."

Bank lending was not involved in this market. Contracts where part of the payment was made with cattle, textiles, silver cups, or a carriage and horses are found in notarial records, but only when the seller wanted what the buyer possessed. The Amsterdam Exchange, the shares of the East India Company, and the foreign exchange market were not affected by this event.

In Goldgar's research, which counted participants from documents, 37 individuals spent 300 guilders or more on bulbs. 300 guilders was the annual income of a master craftsman. The most expensive bulb was about 5,000 guilders, the price of a well-equipped house. No chain of buyers longer than five people has been found, and sellers sold to their acquaintances. Krelage notes that there were very few professional growers and that weavers were prominent.

Price series are scarce, and the economist Peter Garber used the peak of February 5, 1637, to compare the subsequent rate of decline with the price drop of high-end bulbs in the 18th century. The average annual rate of decline from 1637 to 1642 was 32%, while for 18th-century bulbs it was 28.5%. From this difference, Garber argues that the contribution of the crash itself was at most a 16% decline. This is one interpretation, based on the premise that the price of bulbs inevitably falls as a new variety ages.

Evidence

Contemporary historical sources are divided into four groups. First, notarial records. Posthumus published excerpts in the 1920s, which allow us to read individual contracts from 1634 to 1637 and dispute settlements after the crash. Second, the printed list of successful bids from the Alkmaar auction of February 5, 1637. Third, three dialogue pamphlets published between February and May 1637, "Dialogues between Waermondt and Gaergoedt," and over 40 satirical songs and documents. Fourth, municipal and provincial public documents, which include the resolution of the city of Haarlem on March 7, the report of the provincial court on April 25, the resolution of the States of Holland on April 27, and the committee regulations of May 28, 1638.

These sources have biases. The majority of pamphlets were published by those attacking speculation, while documents defending it, such as "Flora's Podium," are few. Notarial records are biased toward disputed contracts. Semper Augustus rarely appears in transaction records, and many of the reported high prices were offers, not completed deals. No continuous price lists exist; prices are scattered by variety and weight.

Research is divided into three positions. Garber (1990) explains the high prices of rare varieties by market fundamentals and opposes calling it a bubble. Thompson (2007) sees it as a "contractual artifact" where futures contracts were later changed to options. Goldgar (2007, 2018) counted participants from notary and bankruptcy records, rejecting the image of irrational frenzy while acknowledging the fact of price increases and the collapse due to fears of oversupply. The three reached different conclusions from reading the same historical sources, and it is impossible to determine which is correct.

Krelage (1942) is the most detailed general history written from the perspective of bulb growers, describing varieties, florilegia, the mechanics of gatherings, and the handling by cities and provinces based on primary sources. Many of the dates and amounts in the main text are based on this book. Thompson's paper and Goldgar's monograph were only used to confirm titles and publication details; their texts are not included in the materials listed here.

Are the common stories true?

Many of the anecdotes told about Tulip Mania were collected in Mackay's "Extraordinary Popular Delusions" of 1841, via satires from just after the collapse and Beckmann's "History of Inventions" from the late 18th century. Mackay's chapter continues to be copied in 20th-century financial textbooks and on websites. Below, we will check the main ones against the historical sources.

"A single bulb could buy a house." The highest price identified by Goldgar is about 5,000 guilders, which corresponds to a well-equipped house. A contract for one Semper Augustus bulb sold for 4,600 guilders plus a new carriage and two horses is in the notarial records, and Mackay also reports this. However, that was the peak; only 37 people spent more than 300 guilders.

"A sailor ate a bulb with his herring." Mackay cites this from Blainville's travelogue, but the story of mistaking a bulb for an onion is an old anecdote told by Clusius about a merchant in Antwerp around 1570, not an event from 1637.

"Two lasts of wheat, four lasts of rye, four oxen, eight pigs, twelve sheep, two hogsheads of wine, four tuns of beer, two tons of butter, 1,000 pounds of cheese, a bed, a suit of clothes, a silver cup, for a total of 2,500 guilders." Mackay, citing Munting, writes that this was paid for one Viceroy bulb. However, this list is an example from a 1636 pamphlet, "A Clear Exposition of Folly," showing "what could be bought for the price of a single flower," and was not an actual transaction. Later storytellers linked it to the Viceroy transaction.

"Everyone from chimney sweeps to noblemen participated." A satirical song from 1637 lists about 80 professions. Krelage notes that the author himself could not have verified this. Mackay's "seamen, footmen, maid-servants, chimney-sweeps, and old-clothes-women" is in the tradition of this song. The large buyers who can be confirmed in documents were from the merchant class and skilled artisans, many of whom were connected by family, religious sect, or neighborhood.

"Bankrupts threw themselves into the canals." Goldgar has found no bankrupts in the bankruptcy records that can be specifically identified as caused by tulips. A documented case of loss is the painter Jan van Goyen, who on January 27 and February 4, 1637, promised to deliver about 900 guilders worth of bulbs and two paintings, and had still not finished paying by 1641. He also speculated in houses and died insolvent in 1656.

"The Dutch economy was devastated and took many years to recover." Mackay concludes so. However, on March 17, 1637, a sale of bulbs for 11,700 guilders was concluded in a notarized deed with payment in three installments, showing that the bulbs had not become worthless. Krelage notes the speed of the recovery, Garber states that contemporary histories treat this period as a golden age, and Goldgar concludes that the Dutch economy was not affected.

"The same bulb was resold 10 times in one day." Krelage also repeats this phrase, but does not cite a source. Goldgar has not found a chain involving more than five people.

In the first place, contemporaries called this event "wind trade" and sang of the collapse as "Flora's death." The term "bubble" was only used by later generations.

Connection to the Present

What remains from this incident today is not so much the record of prices, but how the story was constructed. An exaggeration written as satire was transcribed as history, included in textbooks, and passed down for 400 years. Returning to the historical sources, the number of participants, the extent of the losses, and the legal response were all smaller and more specific than in the legend.

In terms of mechanism, three points offer clues for understanding modern markets: a form of contract that does not require physical backing (short selling), a trading venue where no one verifies the seller's holdings, and delayed settlement where payment is deferred until delivery, causing losses to remain on the books. Rather than the high prices themselves, observing where these structures exist is more useful when choosing subjects for comparison.

Limits of Comparison

Tulip mania is cited as the "epitome of a bubble" in any market surge. However, comparisons with this event are limited to how the story was constructed and the method of counting participant demographics from records. Neither banks, state finances, nor settlement networks were involved, and there are almost no records of credit or leverage (using borrowed money to hold assets larger than one's own). When placed alongside systemic financial crises or experiments with paper money linked to national debt, only the superficial similarities stand out.

Regarding British railway shares in the 1840s, there is research that refutes the image of the "naive investor" based on investor lists, which serves as a methodological counterpart to this case. John Law's System, which took place in the Low Countries and France in the same 17th and 18th centuries, is similar in that contracts and shares acquired value detached from their underlying substance, and distant in that it occurred at the heart of the state. In both cases, it is necessary to list the similarities and differences and avoid equating them.

Read on NOMISMA: /rekishi/jiken/tulipmania-1636

With the same mechanism, the next story to read: Chapter 3, "John Law and the Mississippi System" — In both incidents, 'new narrative, expectations, price→credit→price feedback, leverage' were at work.

Positioning Terms — Types, Mechanisms, Questions, Four Steps

Terms for when you want to compare and read about incidents are summarized in four diagrams. You do not need to memorize them to read the main text.

The terms for arranging incidents have three layers. Six types. Twenty-two mechanisms. Twelve questions. Type refers to 'what kind of incident it is,' mechanism to 'how money and credit moved,' and question to 'what question this incident answers.' After reading about one incident, confirm its position using these three layers, and try writing down what is similar and what is different from the next incident, using the four steps. The terms are defined in one place as the vocabulary for incidents in NOMISMA, and when adding new ones, that place will be amended first.