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What is often overlooked and misunderstood is that the bulbs were not only valued for their beauty, but more importantly for their use as commercial breeding stock.

Since it was not possible to reproduce the best bulbs through seed propagation, the already rare buds themselves were the only source of producing future varieties exhibiting the same beautiful patterns. This goes a great way to explaining the high prices paid, and debunking the myth of irrationality.

"The tulip market involved only bulbs affected by a mosaic virus which had the effect of creating beautiful, feathered patterns in the flowers. Only diseased bulbs were valued by traders, because a particular pattern could not be reproduced through seed propagation. Only through budding of the mother bulb would a pattern breed true." - Garber, Famous First Bubbles https://www.aeaweb.org/articles?id=10.1257/jep.4.2.35

Just because something is limited in supply and capable of reproducing doesn't mean it inherently has value in the context of the greater economy. I don't think this "debunks" the irrationality of tulips. When the price crashed, they weren't left with a tulip they could continue to breed and make a living with, they were left with a worthless tulip.

I'll admit irrationality is hard to define. One could argue the entire art in industry is irrational, but given how low it's been around, it's safe to assume it ties into some fundamental irrationality in us that in turn makes it rational.

Yes, but the discounted present value of that tulip's reproductive capacity into the future is much more justifiable to value so highly. It turned out not to be a good investment, but that doesn't make it irrational. Had a moderately good tulip market persisted, it may have justified paying such a high price for uniquely high quality bulbs, because you could turn them into a productive asset by breeding them.

most of the interesting point is that it seems like tulip were more part of the realm of art then commodities.

People were buying tulips because it was a sign of wealth and taste and a beautiful rare object to display, just like art. People were speculating on those, just like art. But when people do so with Art and pay millions, nobody bats an eye.

Bitcoin (and other commodities) might have another underlying reason for why people give them value and decide to speculate on them (just like, say, Wall Street speculating on cattle futures).

So yeah, maybe some Tulips were sold the price of houses - but it sounds normal when someone spends millions on a painting.

I'm defending any point, just saying I think it's interesting to read this, I never heard before that people were mostly buying tulips because of their symbols, not just for pure speculation.

Nope, they were trading tulip bulbs. You have to store those bulbs in good condition so the flower could bloom. Bulbs are not something you can show off with. Once it blooms it is over you cannot show it off like art. So paying price of a house for something you cannot really show off, will spoil quickly, and you could probably sell to next fool for higher price is pure greedy speculation.

Once it’s done blooming, you can extract the bulb and store it until next year, it works quite well. In dry enough soil, you might even get away with leaving it in the ground.

Once is blooming your expensive Picasso is now two or four expensive Picassos, and in the next year you'll have maybe 20 picasso or so. And as everybody wants to have it in their houses you could easily sold 10 and keep the other.

In the tulipmania some people lost money. The few buyers that knew their stuff, with the expertise to know how to multiply, take good care of them and keep it clean of diseases just get rich. If the unique and rare tulip weren't diseased their owner would became extremely rich and famous. Buying it was the logic choice. The same clone of turkish bulb has been sold each year for entire generations of the same european families. Thousands of years after, is still sought for buyers.

You are putting the emphasis on 'speculative' rather then 'bubble'. All speculative markets go through bubble-like phases, and your success in speculating in a market depends quite a bit on your ability to understand what is driving prices in that particular market during the times you are active in them, and in understanding when, and to what extent, they are bubbling. If one thinks tulips are just like art is just like bitcoin is just like cattle futures, you may not be well-enough informed to speculate successfully in any of those markets.

> If one thinks tulips are just like art is just like bitcoin is just like cattle futures, you may not be well-enough informed to speculate successfully in any of those markets.

It looks to me like the parent poster is just trying to explain the facts on the ground, not give investing advice.

> People were buying tulips because it was a sign of wealth and taste and a beautiful rare object to display, just like art. People were speculating on those, just like art. But when people do so with Art and pay millions, nobody bats an eye.

There have actually been a lot of articles about various art bubbles. Here's one from 2016 about a possible contemporary American art bubble[1]; here's one from 2012 about a Chinese art bubble[2].

[1] https://www.theguardian.com/artanddesign/2016/jan/17/art-mar...

[2] http://www.businessinsider.com/the-chinese-art-bubble-is-pop...

> How is that not irrational? Come on.

It's not irrational in the most basic economic sense - supply and demand determines the price.

Why is gold so expensive? Around 90% of it is being hoarded, not used industrially. People think it's valuable, the supply is limited, therefore it is valuable. Same with cryptocurrencies. Actually, particular cryptocurrency supply is truly limited, unlike gold, which is extremely abundant in our universe.

The only weird thing about the tulipmania is that tulips can be (relatively) easily grown.

Actually, particular cryptocurrency supply is truly limited, unlike gold, which is extremely abundant in our universe.

Depends what you mean by a 'particular' cryptocurrency. There's certainly been no sign of a limit on bitcoin, what with all its forks. And there's no end of alternative copycat coins filling the list at coinmarketcap.com. You have to take a leap of faith to trust that miners won't change the system once all the 'limited' 21 million original bitcoins have been produced...

Ultimately miners aren’t in charge. If miners try to change the rules, but the majority of users ignore them, the miners’ fork will be close to worthless.

Doubt you need miners in order to process transactions, how would you do it without any miners?

* Don't

Gah, that's a pretty bad typo.

If the miners are financially motivated and rational they wouldn’t refuse to mine the most valuable fork. They have a large investment in hardware and would lose a lot of money.

If for some reason they did refuse, or worse, attacked the network (with double spends or censorsing transactions) then the users could emergency fork to change the proof of work and attract new miners.

That's exactly what I mean. Forks of bitcoin are not bitcoin. Though some of them are valued too.

The miners can't change bitcoin, unless the community agrees with them. They can only really join or leave with their hashing power.

I don't think bitcoin will even exist by the time it's scheduled to be mined completely (100+ years).

> particular cryptocurrency supply is truly limited, unlike gold

It is dimensionally incorrect to compare abundance of (a particular) cryptocurrency with gold.

Well, you could compare the number of satoshis with the number of atoms of gold, or grams of gold, or even tons of gold.

Satoshis are still more rare.

https://answers.yahoo.com/question/index?qid=20090614042422A...

Likewise one could make the argument it is dimensionally incorrect to compare abundance of a particular cryptocurrency (bitcoin) with all the different element in the periodic table.

If you are thinking of investing heavily (relative to what you can afford to lose) in any speculative activity, it is not rational to limit your analysis to that most basic economic truism.

This is like arguing that it was rational to appear to be an enthusiastic Christian to avoid being burned alive by the Spanish Inquisition.

If everyone around you believes something fundamentally irrational, it can be situationally rational to appear to have the same belief system.

But that only proves thst rational people are adaptable, not that the belief system itself makes sense, or that it doesn’t create terrible outcomes.

Which is mainly also overblown [1] and one of the first world wide, anti-imperialist campaigns in modern history. And wildly successful if I might say.

[1] https://en.m.wikipedia.org/wiki/Black_Legend

> Why is gold so expensive? Around 90% of it is being hoarded, not used industrially. People think it's valuable, the supply is limited, therefore it is valuable. Same with cryptocurrencies.

I'd say it's quite different. Governments that hold gold often do it because they expect gold to keep its value, not because they are expecting the value to increase massively (I can't think of any government leaders advocating that their country buy a lot more gold to get rich quickly). People who hold cryptocurrencies, on the other hand, seem to say that enormous fluctuations in value (including massive decreases in value) are acceptable because eventually the value might skyrocket. The reason people hold gold and the reason most people hold cryptocurrencies seem to be the opposite of one another.

The author seems to go through great lengths to call a phenomenon where people bought something to sell it for a higher price followed by a sudden collapse in said price, something other than a bubble.

author never said "it is not a bubble". he said "the story is mostly wrong".

If the Tulip mania was in fact "a Dutch financial bubble" then it seems to me the story is mostly right. Apparently some aspects like the government stepping in or the Dutch economy suffering may have been embellished a bit, but I've only ever heard those parts from people who claim the story has been embellished.

http://www.telegraph.co.uk/news/2017/11/16/leonardo-da-vinci...

this counts as many many homes, and no one seems to flinch.

we don't know who bought 5,000 guilder tulip, but we can assume that he could afford it.

_Is this evidence of absence, or absence of evidence?_

author spent a long time in archives studying this particular subject. this is evidence of absence.

in any case, even at inflated prices, buyers were getting something they could touch. what buyers of $1,450 Amazon share are getting - is totally unclear. no voting rights, no dividends, nothing. one helluva value.

> How is that not irrational? Come on.

This kind of statement always interests me in an socio-economic sense. What is rational? What it often comes down to is a personal "my choice is the rational one, and everyone else is irrational". Take an iPhone for example. There are much cheaper phones out there, so is everyone buying an iPhone irrational? And then it only follows, is everyone who buys Apple stock irrational?

Additionally, bubble is a term I find thrown around too easily. It seems any time an asset price is high, people immediately think bubble. A high asset price is not enough. The price must be far beyond some underlying value. The rub is determining value. Is BTC in a bubble? The price is high, and has been very volatile, but what is the value? With my laymen knowledge of BTC, I think the value is certainly > 0$, but is it < 10k? I don't know.

Thinking about this reminds me of the housing bubble. In Vegas house prices made no sense because there is literally land as far as you can see in every direction. Where I live now, there were also clear disconnects from value and price (crappy apartments turned into crappy condos), but not every piece of expensive property was selling way beyond its value. There are properties along the water or on the beach that really are in short supply. Those barely moved down when the housing bubble popped.

Defining 'value' is also a fun conversation, but I've rambled on too long :)

>>Although it’s true that the most expensive tulips of all cost around 5,000 guilders (the price of a well-appointed house)...

>How is that not irrational? Come on.

Rolex, Vertu, Louis Vuitton, Patek Philippe, Coach, Armani. All of these are luxury brands. Their products range from very expensive to more than the average person will earn in a lifetime, never mind the price of a well appointed house, all for goods which are at best five times as mass market equivalents that cost less than 1% of their price.

And they're worth it to t least some of their buyers either because they believe the difference in quality is worth it or because they understand signalling.

https://en.wikipedia.org/wiki/Signalling_%28economics%29

You may have heard that Elon Musk recently launched a sportcar into space. The Netherlands had rich people who could afford to spend money on things they enjoyed too.

There's no accounting for taste.

https://en.wikipedia.org/wiki/De_gustibus_non_est_disputandu...

People typically don't buy luxury bags with the hope of selling them for a profit, though.

Some people do: https://www.theguardian.com/culture/shortcuts/2016/jan/17/th...

But you know, one tulip is still worth one tulip. Who cares about some stupid fiat value?

I guess if there is a 50% or more chance that someone will pay more and you would make money then it makes sense, you can't win if you don't risk, those who stay on the side find comfort in calling those who risk, lucky when they win and stupid when they lose.