Last week the Tulip Day was celebrated in Chile, as a way to celebrate the arrival of spring. For this, Holland House would give away 50,000 tulips, in the Civic Center of Las Condes, to those who came to the place.

What was expected to be a calm and familiar day, turned into chaos: collapsed streets, disorder, fainting, shouting, closure of the Metro and even a water truck to disperse the masses.

This episode, where the crowd carried bags full of this flower, reminds us of the madness that characterized the Tulip Crisis -Tulipomania-, in the Netherlands. And it is not the first time that these flowers cause society to behave in a crazy way.

The Tulip Mania developed between 1634 and 1637, and is known as the first financial bubble on record. It is defined as the event when the price of an asset increases dramatically, beyond its fundamental value, due to the madness of the crowd and is followed by a collapse.

During Tulipomania, tulip bulbs - especially the most peculiar varieties, which had more than one color - reached sky-high prices. At that time, the economy of the Netherlands was booming, with a continuous increase in activity and characterized by the emergence of large companies. Futures transactions were common and a large number of speculators allowed the tulip trade to flourish.

In the book "Extraordinary Popular Delusions and the Madness of the Masses", by British journalist Charles Mackay, it is identified that the Tulip Crisis began to develop in 1634, when the demand for this flower led to the creation of markets in different cities of Holland .

The phenomenon spread to all social strata, with nobles, merchants and peasants investing in tulip bulbs. Houses and land were even sold in exchange for the prized spring flower, culminating in the bursting of the bubble in 1637. Confidence faded and widespread panic gripped traders, resulting in the ruin of many citizens.

However, this event has been called into question by historian Anne Goldgar in her book "Tulipmania," where she argues that the facts of the crisis have been exaggerated. Goldgar found that not everyone in Holland was involved in the tulip trade and that, although some prices reached high levels, many bulbs never increased significantly in value.

He also argues that the idea that Tulipomania caused the ruin of "thousands" of people is unfounded, as he could not find anyone who had gone bankrupt because of the tulip trade, which contrasts with Mackay's claims, who argued that the Dutch economy suffered significant damage and that it took years to recover.

While Tulipomania may or may not have occurred, the truth is that financial bubbles are events in which people, grouped en masse, behave irrationally. What we saw on Tulip Day in our country was -without a doubt- an occasion of chaos in which people acted desperately. Fortunately, we can say that the Chilean market did not get infected to have a tulip crisis a la chilensis.

Source: DeRosa, David (2021). Bursting the bubble. Rationality in a seemingly irrational market. CFA Institute Research Foundation.

Vincent Dourthé

Alternative Assets Analyst Fynsa AGF