Tulipmania: More Boring Than You Thought | Hacker News Reader

Tulipmania: More Boring Than You Thought

smithsonianmag.com

207 pointswslh76 comments

The title is a little misleading. The article itself acknowledges that there was a tulip fever:

> That’s not to say that everything about the story is wrong; merchants really did engage in a frantic tulip trade, and they paid incredibly high prices for some bulbs. And when a number of buyers announced they couldn’t pay the high price previously agreed upon, the market did fall apart and cause a small crisis—but only because it undermined social expectations.

But it implies that it's not all that notable because it didn't collapse the entire economy:

> But the trade didn’t affect all levels of society, and it didn’t cause the collapse of industry in Amsterdam and elsewhere.

Personally, I don't think I'd ever made the assumption that it had. Likewise, if Bitcoin were to implode, it would be similar — some people would suffer, but it wouldn't be all that widespread of an effect.

Tulipmania still makes a great historical anecdote on speculation, and I for one, will keep using it as one.

I was going to make the same comment. I never heard that the Dutch economy collapsed from the tulip trade. But everything else was confirmed. And just like when the bitcoin bubble bursts, I don't think there will be a collapse in the economy either, but it will definitely be a phenomenon that will be talked about decades later.

I'd say the title is absolutely misleading.

Sounds like a case of... titlemania...

Edit: Sorry, you're all right. There wasn't any titlemania after all.

It's very modern of them to assume that a speculative bubble would cause collapse of industry and that it's remarkable that it didn't. The whole relationship between "some people default on loans" and "some other people lose jobs" is a relatively modern type of financial crisis, starting in late 19th century. In a way, it's a curious introduction to macroeconomics, the apparent puzzle that when one person is unable to repay a debt, why does another person somewhere else lose their job? I think they missed an opportunity there to write a little bit more about it, it would explain why people should still care about bubbles.

You may not have made that assumption, but its a _very_ common characterization of what happens in free market based economies. Or more directly, tulipmania is frequently equated with business cycles. I never saw it either, but I've definitely seen it presented as a valid argument many times.

Are business cycles in the modern sense (unemployment that lasts for longer than six months) known to happen in the presence of free banking and absent a central bank? Actual question. It matters because we know how this happens when a central bank controls the currency supply and allows NGDP to drop. It's not obvious to me that this happens with free banking.

Isn't this exactly what happened in the US in the 1800s? A panic and a crash every few years.

Seems like it's completely unavoidable for there to be cycles; central banks and regulations intended to smooth the economy just seem to expand the cycles (longer booms and longer busts) and concentrate malinvestment in different areas (real estate debt in the last crash, for example).

‘Fragile by Design: The Political Origins of Banking Crises and Scarce Credit’, by Charles Calomiris and Stephen Haber. Quoting http://press.princeton.edu/titles/10177.html :

> Why are banking systems unstable in so many countries—but not in others? The United States has had twelve systemic banking crises since 1840, while Canada has had none. The banking systems of Mexico and Brazil have not only been crisis prone but have provided miniscule amounts of credit to business enterprises and households.

> Analyzing the political and banking history of the United Kingdom, the United States, Canada, Mexico, and Brazil through several centuries, Fragile by Design demonstrates that chronic banking crises and scarce credit are not accidents. Calomiris and Haber combine political history and economics to examine how coalitions of politicians, bankers, and other interest groups form, why they endure, and how they generate policies that determine who gets to be a banker, who has access to credit, and who pays for bank bailouts and rescues.

Paper by the authors available from https://www.frbatlanta.org/-/media/documents/news/conference... .

> Canadian banks historically had balance sheets like other banks, and participated in complex global interbank networks since the early 19th century. Yet Canadian banks, throughout their history, avoided systemic banking crises – with the exception of two short-lived suspensions of convertibility in 1837 and 1839 in response to crises originating in the United States. Moreover, prudential regulation was absent for much of Canada’s history, as was a central bank (until 1935). According to the structural theory of crises, the exposure of Canadian banks to liquidity risk should have been higher than in many other countries, given that the Bank of Canada did not come into existence until 1935. According to the externalities theory and the myopia theory, the absence of activist prudential regulation in Canada during most of its history should have been associated with a higher frequency of banking crises, but it was not.

Note that you write "central banks and regulations intended to smooth the economy" but at that last quote points out, "prudential regulation was absent for much of Canada’s history", so something is incomplete in your understanding.

Another way to look at this is that for most of the period under consideration, the Canadian economy was an order of magnitude smaller than both Britain and America. For the bulk of the period under consideration, Canadian currency was fixed to the pound Sterling, which had the Bank of England. Canada gained independence in 1867 and in 1871 passed the Bank Act (and for the bulk of the period under consideration was subject to English common law, and Canadian Acts could be voided by the House of Commons.)

That being said, I admit to not having read the paper. The authors' ultimate conclusion may stand, but that their exemplar is a British Dominion adds some confounding details.

Their "happy six", defined as "free of systemic crises since 1970", are Australia, Canada, Hong Kong, Malta, New Zealand, and Singapore.

They do point out the connections to British rule. They give some other reasons as well.

A test for the importance of being fixed to the pound Sterling, etc., is to look to other regions under British rule, like Jamaica, Mauritius, Kenya, Gambia, and Cyprus, and evaluate their banking crises.

I know nothing about that history, just wanted to pointed out that it is, in principle, a testable prediction.

The major gap in your understanding: Bank insolvency != business cycle. Canada does indeed experience business cycles like every other significant economy. There are some examples in this article, if you don't believe me:

http://www.thecanadianencyclopedia.ca/en/article/business-cy...

Does that meant that your comment had little or nothing to do with the "panic and a crash every few years" from the comment of nerdponx that you were replying to?

Because I thought they were connected, and was following that same topic of "panic and crash".

I do not know why you think "panic and crash" is specific to a run on the bank / forced bank restructuring. By the way, the original comment was about business cycles in general (that nerdponx replied to):

> Are business cycles in the modern sense (unemployment that lasts for longer than six months) known to happen in the presence of free banking and absent a central bank? Actual question. It matters because we know how this happens when a central bank controls the currency supply and allows NGDP to drop. It's not obvious to me that this happens with free banking.

Hope that clears everything up. I don't like arguing semantics for virtually no reason, but in this case it appears you legitimately misunderstood that the terms business cycle, market panics, and crashes are not specific to banks.

You are correct in your interpretation. Much thanks for your time.

banks just settle business credit. That's their job. so business credit is free banking. Everybody can create money. The trick is getting somebody else to accept it.

Central banks don't 'control' the currency supply... Money creation by private bank lending is where most money in modern economies comes from, and adjusting interest rates is such a blunt instrument that they are really powerless to meaningfully control it. Central banks are important for a currency that is stable and usable long-term (if managed properly), but really should be working with the Government to control the money supply through the Government's fiscal measures (taxing and spending) and by prudential (lending) regulation, instead of the current ineffective Monetarist fantasy...

The US only got a central bank - and a pretty limited one at that - in 1913, exactly because the many panics that hit the US money markets were too severe without a lender of last resort to act as a moderator.

* https://en.wikipedia.org/wiki/Panic_of_1819 a U.S. recession with bank failures; culmination of U.S.'s first boom-to-bust economic cycle

* https://en.wikipedia.org/wiki/Panic_of_1837 a U.S. recession with bank failures, followed by a 5-year depression

and so on: https://en.wikipedia.org/wiki/List_of_economic_crises#19th_c...

The question would then be, after the US got a central bank, have the recessions got less severe? The Great Depression was arguably greater than any of those prior to 1913.

Not sure how you weight the great depression, but I believe* the period after the great depression through the 2008 financial crisis featured less severe business cycles than prior to the central bank. The repeated crashes of the late 19th century really were very severe.

See also: https://en.wikipedia.org/wiki/Great_Moderation (though that's a shorter period).

* I know a little about this, but not that much. Take what I say with a big grain of salt.

In the 19th century, a panic in the US was limited to the US - it was still a peripheral economy compared to Europe. After WWI, the US had most of the gold reserves in the World, Europe was riddled with debt (to the US) and very slow to recover. The Great Depression was greater because it affected the whole World, given the centrality the US had assumed in World trade.

But, more importantly, between the Great Depression and the last crisis of 2008, the Western World never saw any panic as big as those of the 19th century: the Fed had learned much better how to be the World banker, and the US had learned that, after winning a war, rebuilding international trade was much important than collecting war debts.

OK, we've changed the article's headline to a phrase used by the book's author.

Sure, but this is the most interesting part, I think:

> So if tulipmania wasn’t actually a calamity, why was it made out to be one? We have tetchy Christian moralists to blame for that. With great wealth comes great social anxiety, or as historian Simon Schama writes in The Embarrassment of Riches: An Interpretation of Dutch Culture in the Golden Age, “The prodigious quality of their success went to their heads, but it also made them a bit queasy.” All the outlandish stories of economic ruin, of an innocent sailor thrown in prison for eating a tulip bulb, of chimney sweeps wading into the market in hopes of striking it rich—those come from propaganda pamphlets published by Dutch Calvinists worried that the tulip-propelled consumerism boom would lead to societal decay. Their insistence that such great wealth was ungodly has even stayed with us to this day.

> “Some of the stuff hasn’t lasted, like the idea that God punishes people who are overreaching by causing them to have the plague. That’s one of the things people said in the 1630s,” Goldgar says. “But the idea that you get punished if you overreach? You still hear that. It’s all, ‘pride goes before the fall.’”

There's some of that in cryptocurrency criticism.

The title is now changed but it reminds me of a tangentially related pet peeve.

I really dislike titles like this. Why do they presume to know what I think? An example from yesterday was that consciousness goes deeper than I thought. On reading the article, it did no such thing. Again, why would they presume to know what I think?

I'm not sure why it rubs me wrong. It certainly biases my perception of the article before I've even read it. I even know that it is prejudicing my reading but I can't seem to get over it.

To me, they seem like click-bait. No, the answer may not surprise me and no, the author actually had no idea what I was thinking. It really does bias me against the article. It's just a small thing but I can see my own biases when I see headlines that include similar statements.

No big deal, just a pet peeve.

Never really thought about this, but a sharp point. Easy to prove the title wrong by reading an article twice. Second time it can't be true

I think it may bother me because I see it as insulting our/my intelligence.

'We looked at X and you won't believe what we found!'

Why yes, yes I will believe what you found, provided you give clear evidence, explain your methodology, and provide credible citations where needed.

I was worried it was only me who felt like this, as I'd not seen anyone else mention it. It really does bias my reading of the article afterwards. I should probably figure out a way to work past that bias, but I guess I should be grateful that I recognize it in myself.

Again, nothing major - it just irks me a bit. I'm not going to rage-quit or anything.

Slight nuance, but I'd say it's assuming the existence of a collective intelligence and homogeneity in the population. Its a slight backhand insult to prod readership for anyone who doesn't already know the subject. It pushes that button of the fear of being left out of a trend.

It's clickbait in another form. Playing psychological games with readers.

It's disrespecting its readers for making an assumption that readers are too shallow to show interest in substance. So, agree, insulting readers' intelligence.

I always have an automatic reaction of postfixing lines like those by "of course, you wouldn't, that's because you are stupid". And then, I get instantly biased against the author just because of a stupid title.

It's not a rational thought, but the saddest part is that the real world fits that bias way too well.

You're definitely not the only one. But in my eyes it's major. As you pointed out -- it's insulting to the reader's intelligence.

That would be fine btw... the real problem is when a valuable material is hidden behind clickbaity titles. Now _THAT_ is what irks me personally -- and is sadly happening lately.

My problem is that it's a cliche, first time it was fine, Nth time it's utterly, irredeemably trite. If they can't bother to come up with a less tired headline, it's probably not good enough for me to bother to read it.

Same with "X considered harmful", just give me a break.

Maybe it's akin to nigerian scams. They don't want to waste their bandwidth on someone who's not going to click on their numerous articles with similar title and generate more ad revenue.

However if you are gullible enough to click on "7 awesome things Miley Cirus did, number 4 will shock you!", you are ripe to click on all the click bait they will show you.

The problem arises when good quality content uses clickbait. It's the same as naming your bank "The Nigerian Prince Bank of America".

I thought the consciousness one was a pun.

Sadly, Smithsonian seem quite prone to this level of crud. I don't cotton it at all.

I don't think they are making a point about any single person. Saying "...than you thought." is just another way of saying "...than is generally believed."

Tulipmania still makes a great historical anecdote on speculation, and I for one, will keep using it as one.

Be careful, seems to me the Tulipmaniamania bubble might be about to burst.

As someone on HN pointed out recently, there’s a much better explanation for the tulip bubble than “speculators went crazy all of the sudden”.

In a 2007 paper, Earl Thompson argues that the extreme tulip bubble was formed because the Dutch government, in coalition with insolvent tulip speculators, allowed speculators to nullify tulip futures contracts, thus inadvertently enabling close-to-risk-free speculation in tulip futures (which, after the regulation, resembled options contracts to a much higher degree).

Here’s an Economist article on the subject: https://www.economist.com/blogs/freeexchange/2013/10/economi...

And Wikipedia has a summary here: https://en.wikipedia.org/wiki/Tulip_mania#Legal_changes

I just posted about this without checking to see if anyone else had said anything...

I guess the paper is trying to help with the misconception that a lot of what occurred in Tulipmania is relatable to modern-day financial bubble crashes where a lot of the general public suddenly lose jobs and money or how a lot of perception was influenced by Calvinists condemning materialistic pursuits, whereas in the actual event of the Tulip fever, it likely only affected the rich and not your ordinary 1600s general public.

So if anything, what we faced in the 2008 crisis and what many are experience now is on orders of magnitude worse than Tulipmania...

Absolutely. Also an example of how the financial system has evolved to tie the fates of some of the large, institutional (too big to fail) speculative investors to that of the common working man in the most unjust way possible. It is impressive how remarkarble they've evolved the finacial sector (for themselves).

This is an advertisement for the movie Tulip Fever that just came out. I noticed a lot of similar posts on other social media sites in the last six months.

Arguably it's more criticism than advertising.

My first thought was "It couldn't possibly be more boring than I think", then in the article I see it's the more accurate title for the book I read that convinced me of that.

tl;dr. Even though Tulipmania might have been an exciting and fascinating event, the actual details of what/why it happened have been lost to history. There are ledgers and letters mentioning tulip prices and do definitely show a bubble. But there's not really any information on why people thought tulips were worth the price they were promising. As with investors today, they generally don't make their motives public, and when they do, you can't necessarily trust them to be honest.

This is a frustrating article, but perhaps the book is better.

The key work here is really Earl Thompson's "The tulipmania: Fact or artifact?" in Public Choice. The article at least does not make any mention of Thompson or his argument. In particular, his argument is that there was a legal change in how the tulip contracts worked and so it didn't make sense to compare the previous price history with the history after that change.

If the environment is stable enough, a bubble doesn't necessarily have to pop.

I think that chronic sustained wealth inequality can create lasting economic bubbles that never pop.

If we lived in a world where everyone had near infinite resources, everything would be a bubble because markets would be driven entirely by status value.

If you think about it, the rich today have practically unlimited wealth thanks to dividends, rent payments and/or interest; they can afford to lose large portions of their income and still become richer.

Now thanks in part to social media, the rich live in a separate world from others; one which has near unlimited resources. So long as money flows into their world faster than it leaks out, bubbles are completely sustainable.

Isn't a bubble defined as a price increase that at some point pops?

Here's a perspective from the Austrian school: https://mises.org/library/truth-about-tulipmania

You learn quickly not to mention favorably certain taboo subjects here on HN, like Austrian economics or free markets being better than regulated one. (I'll refrain from pointing out others, I want to limit the number of downvotes I get. Self-censorship or, in other words, learned helplessness.)

Look, as much as I dislike the Austrian school (it all hangs on certain premises that I don't believe are necessarily true, so I don't think it contributes much to being able to understand the economy), the main problem with the comment above was that it wasn't very useful in just dropping a link with little context... With a bit of commentary or a brief summary of the article, people would have engaged with it instead of just downvoting.

So does mainstream economics. They are both wrong.

At least the Austrian school admits they made the whole thing up in a religious fashion and never submit their ideas to actual science.

Mainstream economics just pretends it's scientific when really the whole belief structure is a house of cards in the same way

I don't disagree, I think that certain ideas from the post-Keynesian and modern monetary theory are probably the closest to actual evidence based Economics at the moment.

There no real free market. I highly encourage the book Debt: The First 5,000 Years. The author makes the argument that markets do not exist independently of states, or at least when they do, they exist in the vacuum of a previous state post-collapse.

It's an incredibly eye opening book that talks about debt, money, war and slavery. They are all deeply connected.

Click bait pattern 101: Claim something is completely different than everybody thought then write that it mainly was as everyone thought with some minor variations.

The real bubble comes when you watch Smithsonian's webpage use close to two gigabytes of RAM in a very short time.

Hey, didn't you know? It's 2017, and we can't display pictures and text without a sandboxed virtual machine running thousands of dynamics queries.

I feel so glad that we finally live in the future. Such a shame how terrible it is, though.

Do you remember the Palm Treo? I remember the Palm Treo. I had the SDK. Every app had direct memory access, no threads and it was easy to crash the phone.

I mean, they didn't serve us tons of ads either but...things aren't that bad...

You make it sound as if it were bad back then? Was it on the Treo? Because I had the previous non smartphone Palms and there that was not an issue.

It was even an advantage IMHO. Apps were fast and good easily exchange data or even better you good use a better app than the standard app for a given data collection. You didn't have the walled data containers we have today.

Granted, with an internet capable device this opens up lots of security problems but I also feel that I was more productive with my handheld back then than I am now with my iPhone.

If you value performance over stability, things were infinitely better. Of course I actually don't value performance over stability, but I am still capable of being shocked by things like the Smithsonian website.

I noticed this a week or two ago when the Chick Parsons article popped up. I made the mistake of... leaving that web page open in the background. It's a world gone mad.

At some stage it'd be interesting to collate 'dumb things HN believes'

TulipMania would join Split Sleep, Drones hitting/near misses planes, X just discovered Y happened Z years previous to what was thought. This Voynich manuscript article adds to the discussion. The Valley has a unique problem with Y.

Self driving cars will be here "in just 5 more years" (I have been hearing that since 2007)...

'HN' is a statistical distribution; it doesn't believe anything. Some people here might believe some of those things but I doubt they're the same people, or close to a majority.

It's popular to diss one's fellow community members, but kind of in bad taste. If you're commenting here, you're as much 'HN' as the next person.

HN has emergent behaviour.

Like an ants nest or a physical human community or a corporation the behaviour doesn't reflex individuals or even necessarily the majority of individuals.

Shrug, I wasn't even saying the dumb things were common.

But I do think these emergent memes bleed across to real world issues.

While people think it's ok to think hundreds of years ago people were stupid and paid 'really' ridiculous amounts of money for tulips, they will also be susceptible to allow war propaganda like what's coming out of North Korea or Iraq. People are people, do we really think the North Korean's are that dumb they think their leader doesn't poop or see the whole Iraq 'Latif Yahia' saga.

>For decades, economists have pointed to 17th-century tulipmania as a warning about the perils of the free market. Writers and historians have reveled in the absurdity of the event. The incident even provides the backdrop for the new film Tulip Fever, based on a novel of the same name by Deborah Moggach. The only problem: none of these stories are true.

Well, speaking of economists' historical-based arguments that weren't, there never was much truth about the keyboard wars either: https://www.utdallas.edu/~liebowit/keys1.html

Reply on news.ycombinator.com