In the winter of 1636, people in Dutch towns signed contracts for flowers that were still under the ground. By February 1637 a rare bulb could cost more than ten times what a skilled worker earned in a year. Then, inside a week, nobody would buy. It is the most famous bubble in history, and a good deal of what is famous about it is not true. Here is what was traded, how it ended, and how the story grew bigger than the market.
A flower nobody could see
The prized tulips were the "broken" ones, whose petals came out streaked with flames of color. Nobody could make a bulb do it on purpose, which is what made them rare. The most famous, the Semper Augustus, sold for as much as ƒ10,000 at the height of the trade, at a time when a skilled laborer might earn ƒ150 to ƒ350 a year [1].
Bulbs spend the winter in the ground, so in the months that mattered nobody could hand one over. What changed hands was a promise to deliver one in the summer.
Trading the wind
Those promises were bought and sold in taverns, in groups called "colleges", with their own rules. A buyer paid a small fee in "wine money", 2.5% of the price up to ƒ3 a deal. Nobody posted a deposit, and there was no exchange behind the contracts; they were private agreements between people who knew each other. The Dutch called it windhandel, the wind trade, because no bulbs moved [1].
It was a smaller crowd than the legend says. Working through the archives, one historian counted about 285 people taking part in Haarlem, a town of about 42,000, and 25 in Enkhuizen [2].
The orphans' auction
The top of the market has a date. On 5 February 1637, the town orphan officers of Alkmaar auctioned a dead man's bulbs for his orphaned children, a sale famous for its prices: had every bulb been paid for, it would have brought in ƒ90,000 [2].
How it ended
The prices broke in the first days of February. A satire of the time dates it to an auction in Haarlem on 3 February, where the auctioneer could find no buyers even after cutting the asking price several times [1].
What followed was a fight over the contracts. On 24 February the florists' guild proposed that deals made before 30 November 1636 stand, and that later ones could be cancelled for 10% of the price. The court declined to rule either way and sent the question back to the towns. In the end Haarlem let buyers walk away from any open contract for 3.5% of the price [1].
One economist argues that this was the real story: once buyers expected to be let off for a small fee, a futures contract had quietly become an option, and an option on a tulip can carry a price that a tulip never could [4].
The legend was the bigger bubble
Most of the famous details come from 1637 pamphlets and songs that were written to make a moral point about money [2], and from an 1841 bestseller, Extraordinary Popular Delusions and the Madness of Crowds, which wrote that "substantial merchants were reduced almost to beggary" [2]. It also told of a single Viceroy bulb bought for a basket of goods worth ƒ2,500, and of a sailor jailed for eating a bulb he took for an onion [1]. Retellings still say one Semper Augustus cost more than a fine house in Amsterdam, coach and garden included; the same magazine piece that repeats the line goes on to say that none of these stories are true [3].
The historian who went through the records found it hard to find any bankrupts tied to the tulip trade at all [2]: "I couldn't find anybody that went bankrupt" [3]. Because almost no money changed hands, the people with the highest prices on paper mostly never collected them, and the people who owed them mostly never paid.
The satirists had the last word anyway. A painting from about 1640, now in Haarlem's Frans Hals Museum, shows the tulip dealers as monkeys weighing bulbs and counting money, while one of them urinates on the flowers [5].
The game on top
The tulip trade had no CEOs and no stock, but it had everything a pump needs: a story, a crowd that wanted to believe it, and a price that held only while someone else would pay more. Synthetic Demand is a satire of exactly that. You are the CEO of an invented company with one job: make the stock go up before you sell. The markets you can be dealt come from real years of market history; this one isn't among them, since 1637 had no ticker.
Every call you make is graded A to F. Selling a story is easy. Getting out before the auctioneer runs out of bidders is the game.