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When we read economic news,

we encounter terms such as 'stock market bubbles' or 'real estate bubbles'.

Bubble economy refers to

due to overheated investments or speculations,

the price of assets including real estate or stocks,

increasing in an abnormal speed.

Investment targets are traded at price

much higher than its actual value

due to interest of too many people.

More people and groups gather

eventually, it will rise up to the point that cannot be sustained.

At the end, the market bursts like a bubble.

Among the 3 modern speculations,

In 1720, there was South Sea Bubble where lots of English investors went bankrupt.

Back then, South Sea Company which was established to overcome fiscal crisis of UK

drew people's attention and started speculation

thinking that it'll earn big profit from Spanish colonies and slave trade business.

But, the stock plunged due to insufficient business contents.

As a result the economy of UK was in chaos.

More recent stock market crash caused by bubble economy would be

dot-com bubble around year 2000.

It is more commonly known as IT bubble.

When internet was developing,

lots of venture businesses were established

and drew investors' attentions.

But, with the lack of internet infra,

expensive prices and poor service

that didn't meet the demands of the customers, the stock market crashed.

Theme stocks that experienced sudden increase due to IT bubble,

such as Gold Bank, Jang Media, Hauri, and Dream Line all got delisted.

But, the most famous

and unique bubble,

also known as Tulip mania or Tulip Bubble,

that occurred in Netherlands in 17th century,

Tulip speculation situation cannot be left out.

Before learning about Tulip bubble,

let's talk about

the basic factors where bubbles form for better understanding.

Bubble in economy refers to

the difference between actual value of the asset

and the price, which was set higher than the actual value.

Here is an example.

When someone is raising a hen that can lay eggs,

actual value of that hen

would be the value of eggs and chicken meat minus the cost to raise that hen.

But a rumor goes around

that the hen can lay golden eggs.

Person A, who heard he rumor, would buy

that hen at double the price

from the original owner.

Then, person B who was doubting the rumor

decides to believe the rumor after the hen was sold at a higher price

and buys the hen at double the price from A.

The price of that hen

would increase through transactions

and will reach the peak quickly.

This is when we can say that this market that trades hen, has bubbles.

One might think that it's absurd

but this bubble economy, as mentioned earlier,

has been around in our history in different forms.

It repeatedly appeared and disappeared.

Among the big and small bubbles,

Netherlands' Tulip mania

is the most famous and unique bubble worldwide.

In 17th century, Netherlands was in its golden age.

Netherlands, which was ruled by Spain, the pioneer of the Age of Discovery

and also a great empire,

due to demanding tax and religious suppression

started an independence war against Spain in 1568.

In 1648, through Treaty of Westphalia,

they gained their official independence.

Netherlands, which was freed from Spanish rule,

became the new financial hub with Amsterdam in the center.

This led to finance specialists from all over Europe to gather.

Especially the Jews and Huguenot

who escaped from religious suppression

brought huge fortune to Amsterdam

and played a big role in developing the financial business.

That's how the world's first stock market was formed in Amsterdam in 1609.

Banks and stock markets were established in all parts of Netherlands

making Netherlands the financial core of Europe.

Tulip is known to have originated from Tian Shan Mountain Range in Central Asia.

It is told that it was first found in the mountain range

when the Ottoman Empire was expanding before 16th century.

Afterwards, Ottoman Empire destroyed Constantinople

and established the capital Istanbul there.

Istanbul started growing tulip

to decorate their majestic palace.

This tulip was spread to Netherlands around 1550s.

Ogier de Busbecq from the Holy Roman Empire was sent to the Ottoman Empire as an ambassador

and brought tulip bulbs to Vienna, Austria.

Then, he gave it to Charles de l'Ecluse who was a botanist from Netherlands.

That's how it reached Netherlands.

Only the rich or botanists used to know about tulips

but as it entered Netherlands, it became popular to more people.

Back then, in Netherlands, as mentioned earlier,

financial business started to develop and capital was overflowing in the market.

People who paid attention to tulips in early 17th century

were plants enthusiasts among the rich people.

Tulip is hard to increase the output in short term

so this scarcity matched the preference of those plant enthusiasts who were financially stable.

Beautiful tulip bulbs were traded at expensive price from the beginning.

Then, a gardening expert made breed improvements

and made various tulips which made not only the plant enthusiasts

but also the public to pay attention to tulips.

Back then, tulips with single color were traded at cheaper price

but rare and higher ranked kinds were traded at very high price.

Rare kinds were varieties produced from virus.

Over 400 new kinds were developed

Each tulip were ranked in to emperor, viceroy, admiral, and general, to give difference to the prices

The enthusiasts especially preferred

tulips with purple or white striped flowers

with the name 'Semper Augustus' meaning 'Ever exalted'.

This tulip bulb was traded at least for 3,000 guilders.

3,000 guilders could've bought 8 pigs or 4 bulls.

It was also that of annual income of the low income group.

Even if it was a unique tulip bulb,

to pay an annual income for a plant bulb

must've been really expensive.

Anyways, seeing that rare tulip bulbs were traded at expensive price,

people started paying attention to rare tulip bulbs.

Growing rare species well would make money,

and it is possible to make a beautiful variety,

so there were expectations that it is possible to make big money.

From Leiden region, where the tulips were first spread,

to Amsterdam, Haarlem and others

Competition arose all over Netherlands to secure tulip bulbs

Some made huge profits.

As the market became bigger,

futures trading system was introduced

so that tulips can be traded in winter as well.

It was held not in official stock market

but at some pubs.

In the trade, actual money or bulbs were not required.

They just signed some contracts

stating that they 'will pay the amount until the next spring'

or stating that 'the bulbs will be given once the payment was made'.

News about making a big fortune with tulips spread quickly

and people were able to make transactions without actual money or bulbs,

workers, master artisans, and farmers in Netherlands,

who were not able to buy tulips due to lack of capital

also started trading in tulip market.

Ordinary people, who didn't have the capital, started trading

relatively cheaper tulips that they can afford.

But the price of regular bulbs also increased along with rare tulips

so it looked like as if anyone could become rich anytime soon.

The upturn of tulip price that increased for a year long in 1636

reached the peak in January 1637.

It would double or triple within a day

and increased dozens of times a month.

It would get more expensive at anytime.

Those who participated in trading tulips

all earned a big fortune without exception.

Literally, 'Unbeatable legends of Tulips' began.

As the price of tulip bulbs increased endlessly,

those who got more greedy

sold their land and house to buy tulips.

But on February 3, 1637,

the trade price of tulip unbelievably started to drop.

Since everyone started growing tulips, the supply surpassed the demand

and there were no more buyers.

Those who were swept over with the rage of speculation

started thinking 'Does it make sense to buy flowers with this money?'.

That's how the whole market froze.

In just 4 months,

the price dropped more than 95%

and promissory notes were dishonored.

Debtors who could not pay back the debt increased.

Lawsuits continued between creditors and debtors.

Those who were not able to pay back their debt ran away overnight

and the cities of Netherlands were in chaos.

To react to sudden bubble crash,

Parliament of Netherlands carried out direct research

and judged that tulip's property values cannot be recognized.

Therefore, those contracts made in pubs were invalidated.

Also, the judgment had extreme measures, stating that by paying only 3.5% of the futures trading price,

debts should be considered paid.

It means, those who sold tulips for 1,000 guilders were only allowed 35 guilders.

Due to this measure, the tulip market which was chaotic,

came back to normal

but there were still people who suffered great loss from speculation.

Jan van Goyen who pioneered realistic landscape paintings of Netherlands

made a contract, a day before the Tulip bubble, to trade

900 guilders worth of painting with a tulip bulb.

He is famous for getting a direct hit from the Tulip bubble crash.

During the tulip speculation craze,

he forgot about his job and got indulged in tulip speculation.

When the bubble crashed, he got astronomical debt,

To pay off the debt,

he had to paint over 2,000 drawings and paintings in his life.

However, the collapse of tulip bubble didn't affect the economy of Netherlands.

It's because most trades were done in forms of promissory notes and futures trading.

However, it still shocked the entire Netherlands.

Afterwards, Calvinism emphasizing in moderation and abstinence became popular again.

Researchers of later time analyzed tulip bubble to have 2 causes.

First is because there was a limited amount of tulip bulbs,

the demand suddenly increased and suddenly crashed.

Second is that people had a blind faith

that tulip bulbs will give them money no matter the actual value.

In this video, we've talked about Netherlands' tulip bubble

which is counted to be the representative case of financial speculation.

Thank you for watching this video.

Have a good day.