Dutch Tulip Mania

CaptainDan

Active Member
I just finished reading the section in Guide to Investing in Gold & Silver about the Dutch tulip mania that occurred in Holland during the Dutch Golden Age and which collapsed in 1637. According to Wikipedia, it's common for those in the know to call any speculative economic bubble where prices are greatly misaligned with an asset's intrinsic value, "tulip mania." I'm not sure the author, Mike Maloney, was trying to prove anything in particular by writing this section other than to demonstrate how utterly irrational human beings can become as it pertains to spending inordinate amounts of money for no other reason than perceived value. Here in the United States, we have plenty examples of our own speculative bubbles. Think about Beanie Babies. Think about baseball cards. Think about artwork. None of these things have any value other than what someone or a group of people have agreed upon. Even gold is speculative if you think about it. What value does gold or silver hold beyond what we perceive? People claim that it's got real value. That it's money. That it's worth something. Is it? If the global financial system collapsed tomorrow and the entire planet of people began the process of starving to death, do you think gold would help? Would you eat the gold? Would gold save you from illness? I'll tell you what would be a lot more valuable than gold. Land upon which to farm. Weapons with which to defend yourself, and food to eat. Probably some medicine too. It's not rocket science. Yes, gold and silver are valuable as industrial necessities, but beyond that, any value we've attributed to precious metals has been completely arbitrary and within the confines of a fully functional monetary system.

Actually, I think Mike shot himself in the foot by writing this section. He sort of proved my point from above. We're silly beings, we humans are.

Anyway, as I was doing my research for this post, I bumped into an article written in the Smithsonian Magazine that claims the entire tulip mania thing didn't actually happen. I have no idea whether it happened or it didn't, but I always love those who makes claims and counterclaims, as if any of us were there. History is full of fake new and made up stories to fit the narratives of whomever wrote it. Just think about the history of 2020 we'll read in 50 years. Can you imagine what it will contain? Pure nonsense, that's what.

For the sake of this post, I'll give you a quick rundown of what occurred during this tulip bulb mania in Holland. In 1593, tulip bulbs began being imported into Holland from Turkey. Almost instantly, the bulbs were viewed upon as a status symbol and anyone with means simply had to have some. Because of this "mania," the price per bulb exploded and ultimately (and allegedly) reached $1.8 in today's dollars. Well, actually Mike's book was written some years ago. I'm sure this price in today's dollars will continue to climb. As I sit here any type, the Biden administration is planning a $1.9 trillion stimulus package. We'll just have to see if that prompts any inflation. More on that in a moment. Anyway, once the population of Holland realized how silly they were being, the price of tulip bulbs collapsed in 1637. Tulips were once again priced much more rationally and as if they were only a flower.

I think proponents of the free market don't like this story too much. They claim that it was the free market that allowed the tulip fever to fester and because it climbed so high and ultimately collapsed, the economy of Northern Europe suffered for decades. While I agree with them, I don't see any other alternative. Certain constraints have been placed on markets before and it was actually those constraints that caused failure, so which is better? A free market economy or a command economy? I really don't know.

Before I end this post, I'd like to quickly touch on the $1.9 trillion stimulus the Biden administration is pushing right now. I've been hearing from the Democrats that this is an absolute must and I've been hearing from the Republicans that it'll put us into a tailspin with national debt and inflation. Which is it? I really don't know, but I'll offer you a perspective that's rarely considered. It's one of a global economy of which the United States and China are the two largest players. Basically, The U.S. is China's biggest customer. If the U.S. has no money to spend, China's got no one to sell to. Not really, but in simple terms. If this were the case, the two largest economies on the planet would nearly collapse, bringing the rest of the world with them. If you were part of the monetary and political policy machine, what would you do? After all, when recessions and depressions occur, deflation follows, not inflation. During this deflationary cycle, the adding of stimulus makes sense, not only for the United States economy, but for China's and the rest of the world's. So by adding another $1.9 trillion to the American economy, the Fed is actually adding this amount of money to the entire globe. People need to stop thinking on a national level. It's disingenuous. This stimulus will be sliced up between 195 different nations and it'll be barely noticed. We as citizens of this fine nation really have no idea how global banking works. We make many assumptions that simply aren't true. Like the price of gold (and tulips), much of what we say is pure speculation.

What's your opinion on the Dutch tulip mania issue? Also, what's your opinion on the Biden administration's push to add all of this additional money to the global economy? I'd love to know.
 
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