A Story about Amsterdam, a Tulip Bulb and a Mortgage

A Story about Amsterdam, a Tulip Bulb and a Mortgage

Early 1600’s

Imagine for a moment that you are a humble Dutch carpenter living in Amsterdam during the early 1600’s.

With Europe still rebuilding from the devastating affects of a population almost wiped in half during the 1300’s by the Great Famine and then the Bubonic Plague your skills as a carpenter are in high demand. Even more so now that most of Europe is at war and your beloved country is just beginning to boom.

Your family survived the worst of the revolt against the Spanish rule of the mid to late 1500’s and now with the outbreak of the ’30 Years War,’ you work with a renewed sense of honour and purpose to build a stronger, greater republic for yourself, your family and your fellow Dutchmen. The Amsterdam Stock Exchange (the world’s first stock exchange) and the Dutch East India Company (still to this date the most valuable company in history) are founded in 1602 and you watch on with pride as the Dutch Empire spreads its wings across the world.

You didn’t know it at the time, but whilst your countrymen are fighting the Spanish and you are working hard to build your great city, a botanist named Caolus Clusius brings a tulip bulb from Vienna to the University of Leiden near Amsterdam, with the intention of studying and researching the plant. Though even if you did know, why would you care? A single flower bulb seems completely insignificant to your life considering dramatic current events. Little did you know however that shortly, a single flower bulb would consume your whole world.


Even with your country back at war with the Spanish after the ’12 Years Truce’ from 1609 to 1621, by 1625 the Dutch East India Company and the newly formed Dutch West India Company have accumulated ports across the globe from Indonesia to New Amsterdam (modern day New York). These trading ports now provide the Dutch ships relatively safe harbour where they collect valuable spices and other goods to import back into Europe, flooding your home town of Amsterdam with a freshly minted wealth.


As the main beneficiary of the ‘Dutch Golden Age’ your city of Amsterdam has quickly become an economic, scientific and cultural epicentre. Boasting it’s own bank, the building of canals and home to the famous artist Rembrandt and his peers. Even with the war still on going you are living well and making as much money as you could have ever hoped to. Actually, your whole city is getting rich and one of the most highly desired luxury items is quickly becoming the tulip.

Talking with an old friend in a tavern he mentions that he overheard a couple of rich merchants saying that the French are now also fond of the most beautiful tulips and that this is beginning to drive up the price of tulip bulbs in Amsterdam. He says he is considering buying an option on a tulip bulb as an investment with the aim to on sell it next year for a profit. You ask your friend, a baker, ‘What does he really know about tulips?’ He replies, ‘What is there to know, rich people love them and it takes seven years or more to grow a bulb from seed, so surely the supply can’t keep up with the demand. Especially now that the trading ships are constantly bringing in more and more wealth.’

You laugh the conversation off, a baker buying an expensive flower bulb makes no sense to you at all. The current price of an option on a single tulip bulb is twice your annual salary as a carpenter! You just shake your head and after you leave the tavern you forget all about your friend’s tulip fantasy.


The following year you run into your friend the baker again. He says he has never been better and reminds you of your conversation about tulips from the previous year. Turns out he actually followed up on the rumours, mortgaged his home and with the borrowings bought an ‘option’ on a tulip bulb, which has now doubled in value! Sure that tulips will continue to go up in value the baker continues to hold his option on the tulip bulb and tells you, ‘You are crazy not to do the same.’

Feeling equally excited and jealous of your friend, you forget your previous years scepticism and return home to tell your wife the story. She asks the same question you originally asked, ‘He’s a baker, what does he know about tulips?’ You explain what he has told you and tell her it’s a sure thing, ‘Our family will be rich and I will no longer have to build houses for the rich, as we will be the rich!’ Your wife looks at you with a concerned look on her face and states that together you have both worked hard for what you have, that you may not be rich, but you do have a nice modest house and there is always food on the table for the children. She doesn’t think that it is worth risking all of this on a single flower. You eventually calm down your excitement and agree with her, but the thought that one investment could set you up for life continues to niggle in the back of your mind.

A few months pass by and you are now hearing more and more about tulip bulbs, it seems like everyone is getting in on it and getting richer by the day, even your chimney sweep is now richer than you! You explain this to your wife but she can’t see it from your point of view, telling you to let it go as she is already happy. You decide you can’t take it anymore, you are the man of the house, you are going to take the matter into your own hands. The next day you begin making plans to mortgage your house and buy a tulip bulb option.

November 1636

As the proud new owner of a tulip bulb option you are now spending more time with your baker friend. Laughing away your days together at the tavern, toasting each other and dreaming up ways you are both going to spend your ever growing wealth. At home however it is a different story. You are beginning to build up a resentment towards your wife, even when you show her that your tulip bulb option has already tripled in value she is still angry at you for mortgaging the house and quitting your job. Even though you are now technically rich! You just can’t understand why she isn’t praising you.

December & January 1637

By December you and the baker can’t believe how fast your wealth is growing. Feeling the self importance fast wealth will sometimes bring, you boast together about how smart you both were to buy a tulip bulb option when many of your other friends and neighbours had not. You are now even hearing of tulip bulb options changing hands up to ten times in one day, people just cannot get enough of them and this continues to snowball your wealth. Your wife continually asks you to consider selling to pay back the mortgage and put the profits in the bank to pay for the children’s education and a nice, comfortable retirement. Pleading with her to listen to you, you state that you can’t sell it now, it is getting better by the day, due to the spreading boom the government has just announced a regulation that allows you to get out of your tulip bulb option contract by paying just a 10% fee of the original buy price. This news of a protected downside on tulip bulb options has sent the market crazy and by the end of January your option is now up 15 fold in value. On paper you and your family are now considerably rich.

February 1637

Because your tulip bulb option is just a piece of paper and doesn’t pay a dividend or produce an income, your savings are beginning to run out and you don’t want to return to work as a carpenter. For this reason you decide you are finally going to bite the bullet, sell your tulip bulb option on the 1st of March and take your profits. Your wife is now extremely happy with you. Feeling good to be bringing home the wealth for your family, lying in bed that night you decide the next morning you are going to go out and buy some gifts for your wife and children with the remainder of your savings. You awake excited to go out into the town and return with gifts for your family. On the way home with your gifts you make your daily stop by a local tavern to listen in on how much people are currently paying for tulip bulb options.

As you approach the tavern it seems chaotic with men screaming at each other and solider’s having to break up multiple conflicts. You notice one of the men is your friend the baker and he is getting dragged away by soliders. When you approach him he is inconsolable and you can not make sense of anything he is screaming. Asking an onlooker what happened to him, the onlooker replies, ‘Poor fool. He mortgaged his house to buy one of those tulip bulb options and though he was very wealthy on paper yesterday, this morning the government has taken away the 10% opt-out regulation on all tulip bulb options and this has finally caused the price to collapse.’

May 1637

Sadly for you and your family your tulip bulb option now can’t even buy you an onion bulb.


If you haven’t heard of the Dutch tulip boom before you may think this story is purely a fictional tale. The story itself is, but it is based on a loose account of history during this era in the Dutch Empires rise to prominence.

It is easy to sit back now and read old accounts of history shaking your head at the foolishness of market participants that fuelled this particular boom, especially a boom over a flower. It seems ludicrous, but across history we have continued to do the same thing over and over again; whether tulips, gold, technology stocks, bonds, emerging markets, oil, soybeans or just about anything else we can attach a value to.

As I write this I am living in Sydney, Australia watching property market participants continually bid up prices. Property may be a more functional asset than tulip bulbs, however the mindset in this current property market appears to have many similarities to that of the Dutch ‘Tulipmania’.

I may be wrong, but if history is anything to go by….



If you have any insight, comment or feedback you’d like to share feel free to below.


Enjoy the ride!


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