The document summarizes the Tulip Mania that occurred in the Dutch Golden Age in the 1630s. Speculative demand caused the prices of tulip bulbs to rise dramatically, with some single bulbs selling for more than 10 times the annual income of a skilled craftsman. However, in February 1637 the prices suddenly collapsed, causing the market for tulip bulbs to halt. The event threw into question people's understanding of value and is seen as one of the first recorded speculative bubbles.

3.  the first recorded speculative (economic)
bubble
 a period in the Dutch Golden Age during
which contract prices for bulbs of the recently
introduced tulip reached extraordinarily high
levels and then suddenly collapsed
 At the peak of tulip mania, in February
1637, some single tulip bulbs sold for more
than 10 times the annual income of a skilled
craftsman

4.  The tulip was introduced to Europe in the mid-16th century from
the Ottoman Empire to became very popular in the United
Provinces
 rapidly became a luxury item and a status symbol
 Growers named their new varieties with exalted titles
 Tulips grow from bulbs, and can be propagated through both seeds
and buds. Seeds from a tulip will form a flowering bulb after 7–12
years. When a bulb grows into the flower, the original bulb will
disappear, but a clone bulb forms in its place, as do several buds.
Properly cultivated, these buds will become bulbs of their own
 Tulips bloom in April and May for only about a week, and the
secondary buds appear shortly thereafter. Bulbs can be uprooted
and moved about from June to September, and thus actual
purchases (in the spot market) occurred during these months

5.  During the rest of the year, traders signed contracts
before a notary to purchase tulips at the end of the
season (effectively futures contracts)
 Thus created a market for durable tulip bulbs. Short
selling was banned by an edict of 1610, which was
reiterated or strengthened in 1621 and 1630, and again in
1636. Short sellers were not prosecuted under these
edicts, but their contracts were deemed unenforceable.
 As the flowers grew in popularity, professional growers
paid higher and higher prices for bulbs
 By 1634, in part as a result of demand from the
French, speculators began to enter the market. In
1636, the Dutch created a type of formal futures markets

6.  Traders met in "colleges" at taverns and buyers were required to
pay a 2.5% "wine money" fee, up to a maximum of three
florins, per trade
 The contract price of rare bulbs continued to rise throughout 1636.
That November, the contract price of common bulbs without the
valuable mosaic virus also began to rise in value.
 no bulbs were actually changing hands, however in February
1637, tulip bulb contract prices collapsed abruptly and the trade of
tulips ground to a halt.
 Neither party paid an initial margin nor a mark-to-market
margin, and all contracts were with the individual counter-parties
rather than with the exchange. No deliveries were ever made to
fulfill these contracts because of the market collapse. This trade
was centered in Haarlem during the height of a bubonic plague
epidemic, which may have contributed to a culture of fatalistic
risk-taking

7.  Goods allegedly exchanged for a single bulb of the Viceroy
 Two lasts of wheat 448ƒ
 Four lasts of rye 558ƒ
 Four fat oxen 480ƒ
 Eight fat swine 240ƒ
 Twelve fat sheep 120ƒ
 Two hogsheads of wine 70ƒ
 Four tuns of beer 32ƒ
 Two tons of butter 192ƒ
 1,000 lb. of cheese 120ƒ
 A complete bed 100ƒ
 A suit of clothes 80ƒ
 A silver drinking cup 60ƒ
 Total 2500ƒ

8.  the growing popularity of tulips in the early 17th century
caught the attention of the entire nation
 By 1636, tulips were traded on the exchanges of numerous
Dutch towns and cities. This encouraged trading in tulips by
all members of society
 Many individuals grew suddenly rich. A golden bait hung
temptingly out before the people, and, one after the
other, they rushed to the tulip marts
 People were purchasing bulbs at higher and higher
prices, intending to re-sell them for a profit
 In February 1637, tulip traders could no longer find new
buyers willing to pay increasingly inflated prices for their
bulbs
 the demand for tulips collapsed, and prices plummeted

9.  the panicked tulip speculators sought help from the
government of the Netherlands, which responded by
declaring that anyone who had bought contracts to
purchase bulbs in the future could void their contract
by payment of a 10 percent fee
 The mania finally ended with individuals stuck with
the bulbs they held at the end of the crash—no court
would enforce payment of a contract, since judges
regarded the debts as contracted through
gambling, and thus not enforceable by law

10.  Does it question of the efficient market hypothesis?
 even at its peak the trade in tulips was conducted almost
exclusively by merchants and skilled craftsmen who
were wealthy, but not members of the nobility
 dozens who experienced financial troubles in the time
period, and even of these cases it is not clear that tulips
were to blame
 money had not exchanged hands between buyers and
sellers. Thus profits were never realized for sellers;
unless sellers had made other purchases on credit in
expectation of the profits, the collapse in prices did not
cause anyone to lose money
 The increases of the 1630s corresponded with a lull in the
Thirty Years' War

11.  On February 24, 1637, the self-regulating guild of Dutch florists, in a
decision that was later ratified by the Dutch Parliament, announced
that all futures contracts written after November 30, 1636 and
before the re-opening of the cash market in the early Spring, were to
be interpreted as option contracts
 This decree allowed someone who purchased a contract to void the
contract with a payment of only 3.5 percent of the contract price
 Thus, investors bought increasingly expensive contracts. A
speculator could sign a contract to purchase a tulip for 100 guilders.
If the price rose above 100 guilders, the speculator would pocket the
difference as profit. If the price remained low, the speculator could
void the contract for only 3½ guilders. Thus, a contract nominally
for 100 guilders, would actually cost an investor no more than 3½
guilders. In early February, as contract prices reached a peak, Dutch
authorities stepped in and halted the trading of these contracts

12.  that actual sales of tulip bulbs remained at ordinary levels
throughout the period
 the "mania" was a rational response to changes in contractual
obligations
 Some economists also point to other factors associated with
speculative bubbles, such as a growth in the supply of
money, demonstrated by an increase in deposits at the Bank
of Amsterdam during that period
 Even though the financial crisis affected very few, the shock
of tulipmania was considerable. A whole network of values
was thrown into doubt
 The idea that the prices of flowers that grow only in the
summer could fluctuate so wildly in the winter, threw into
chaos the very understanding of "value

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