• DOI:10.1007/S12113-006-1000-6
• Corpus ID: 153904651

The dutch monetary environment during tulipmania

@article{French2006TheDM,
  title={The dutch monetary environment during tulipmania},
  author={Doug French},
  journal={The Quarterly Journal of Austrian Economics},
  year={2006},
  volume={9},
  pages={3-14}
}

• D. French
• Published 1 March 2006
• Economics
• The Quarterly Journal of Austrian Economics

W hen the economics profession turns its attention to financial panics and crashes, the first episode mentioned is tulipmania. In fact, tulipmania has become a metaphor in the economics field. Should one look up tulipmania in The New Palgrave: A Dictionary of Economics, a discussion of the seventeenth century Dutch speculative mania will not be found. Guillermo Calvo (1987, p. 707), in his contribution to the Palgrave instead defines tulipmania as: "situations in which some prices behave in a way that appears not to be fully explainable by economic 'fundamentals. '" Brown University economist, Peter Garbcr, is considered the modern tulipmania expert. In Garber's view, tulipmania was not a mania at all, but is explainable by market fundamentals. The explosive increases in the price of tulip bulbs, Garber says, can be explained by supply and demand factors. Rare bulbs were hard to reproduce and in the greatest demand. Thus, rare bulbs tended to rise in price. However, this does not explain the price history of the common Witte Croonen bulb, that rose in price twenty-six times in January 1637, only to fall to one-twentieth of its peak price a week later (Garber 1989, p. 556). Garber admits in more recent works (2000, p. 80) that the "increase and collapse of the relative price of common bulbs is the remarkable feature of this phase of the speculation." Garber in his own words "would be hard pressed to find a market fundamental explanation for these relative price movements." In addition to his ~'fundamentals" argument, Garber (1990b, p. 16) points to the Bubonic Plague as a possible cause of tulipmania. "Although the plague outbreak may be a false clue, it is conceivable that a gambling binge tied to a drinking game and general carousing may have materialized as a response to the death threat." This fatalistic extension of Keynes's "animal spirits" hypothesis is less than convincing.