Tulipmania - Anne Goldgar (University of Chicago Press, 2008)

A serious review of one of the iconic financial bubbles in European history.  The author suggests that legend has largely shaped our views on its origin, extent, and impact on Dutch society.  [330.949203]

This book re-examines the Tulip bubble of 1636-7.  Its premise is that everything we all have read in Extraordinary Popular Delusions, in Burton Malkiel, and elsewhere is based on flawed documents.  All of these derive from a single 18th century source (or from MacKay who used this same source) that drew its information from 17th century pamphlets.  The pamphlets were written with didactic or moralizing intent rather than as actual history.  They exaggerated the spread of the speculation in society and its economic impacts of the Dutch economy. 

The book asserts that the Tulipmania we all know never really happened.  There was a rise in prices, but the trade was confined to a fairly small community of traders with a high concentration within the Mennonite religious sect.  The records indicate few bankruptcies resulting from the collapse in prices.   The plague in Holland in 1636 led to inherited wealth and a new attitude toward earthly pleasure also encouraged the bubble. 

One interesting financial aspect to the actual trade is that for seven months of the year, the bulbs stay in the ground.  The trade depended heavily on forward markets and prices.  That is why the collapse led to some problems of honor among the merchants - with a forward contract the temptation to renege is high when prices fall.  There is also the problem we saw in the repo fails situation in 2008 when contracts are daisy-chained; one failure to deliver disrupts an entire series of trades. 

The book can be a bit of a long read.  Goldgar, the author, is fairly detailed on the development of tulips as objects of beauty, for the newly prosperous merchant class of Holland in the Golden Age.  She goes then into the society that engaged in the tulip trade and how small this group was and how disputes were settled.  Finally the book begins to address the tulip market.  The main point is that the pamphlets that misled later readers reflected uncertainty about the new social mobility, the rise of new classes and the impact on traditional notions such as value and honor made all the more severe by the stress of dishonored contracts. 

In the end, however, such revisionist history is satisfying.  The book's subtitle "Money, Honor, and Knowledge in the Dutch Golden Age" explains the breadth of the argument.  It makes more sense of what is usually cited as simply the madness of crowds.

This book is recommended and highly recommended for readers with an interest in art history and Dutch culture.