Dave Wilson sent David Farber’s “Interesting People” email list a paragraph from Charles Mackay’s Extraordinary Popular Delusions and the Madness of Crowds (which I may have somewhere; Mark Frauenfelder once gave it to me for Christmas… if I had only thought to take it more seriously!) Here’s the paragraph, suggesting what you have when the bubble bursts:
At last, however, the more prudent began to see that this folly could not last for ever. Rich people no longer bought the flowers to keep them in their gardens, but to sell them again at cent. per cent. profit. It was seen that somebody must lose fearfully in the end. As this conviction spread, prices fell, and never rose again. Confidence was destroyed, and a universal panic seized upon the dealers. A had agreed to purchase ten Sempers Augustines from B, at four thousand florins each, at six weeks after the signing of the contract. B was ready with the flowers at the appointed time; but the price had fallen to three or four hundred florins, and A refused either to pay the difference or receive the tulips. Defaulters were announced day after day in all the towns of Holland. Hundreds who, a few months previously, had begun to doubt that there was such a thing as poverty in the land, suddenly found themselves the possessors of a few bulbs, which nobody would buy, even though they offered them at one quarter of the sums they had paid for them. The cry of distress resounded everywhere, and each man accused his neighbour. The few who had contrived to enrich themselves hid their wealth from the knowledge of their fellow-citizens, and invested it in the English or other funds. Many who, for a brief season, had emerged from the humbler walks of life, were cast back into their original obscurity. Substantial merchants were reduced almost to beggary, and many a representative of a noble line saw the fortunes of his house ruined beyond redemption.
According to Wikipedia, “economists have debunked many aspects of [Mackay’s] account,” primarily whether “tulipmania” was actually a “bubble.”
While Mackay’s account held that a wide array of society was involved in the tulip trade, Goldgar’s study of archived contracts found that 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. Any economic fallout from the bubble was very limited. Goldgar, who identified many prominent buyers and sellers in the market, found fewer than half a dozen who experienced financial troubles in the time period, and even of these cases it is not clear that tulips were to blame.
Where today’s economic crisis is concerned, I’ve wondered to whether it’s catastrophic for the middle (and lower) income classes as compared to the wealthy, who have more to lose. Whatever the case, we’re on the edge of a volatile transformation. David Armistead and I (among others) have been talking for many months now about the inevitable evolution of a “sustainability economy,” shifting from assumptions of resource abundance driving seemingly unlimited consumption to a prevailing assumption that resources are inherently limited (not so much an assumption as a given). (Thomas Friedman suggests that we “green the bailout.”) In the new economy, we’ll shift from resource extraction to resource efficiency, from drilling for oil to drilling for knowledge. Our tulip farms will be organic, and we’ll return to the soil what we take.
