17. The first recorded speculative bubble, the Tulip Mania of 1637 saw the price of a single bulb of the flower exceed ten years income for middle-class Dutch craftsmen
During the Dutch Golden Age, the Dutch, as the leading economic power, enjoyed the highest per capita income in the world. In the early-17th century, futures markets – facilitating contracts to buy specific quantities of a commodity at a predetermined price at an arranged date in the future – began to develop. In a bizarre saga, in early 1637 futures in tulip bulbs skyrocketed in value as people frantically bet on their prospective costs. By February 1637, the cost of a single bulb of the flower ranged between 3,000 and 4,200 Dutch guilders; to place this figure in context, the average annual wage of a skilled craftsman at the time was approximately 300 guilders.
In one recorded transaction, 12 acres of land were offered in exchange for a single tulip bulb. Naturally, this price was ludicrous and an inevitable correction occurred precipitating an economic downturn. Although negatively affecting the Dutch, the incident miraculously did not leave any lasting damage and a swift recovery was possible. Economist today still refer to futures commodities with prices far exceeding their intrinsic value as “tulips”, with various counter-proposals offered for the madness that gripped Dutch financial markets. The most commonly accepted rational explanation is that bankers expected a parliamentary decree permitting voiding futures contracts for a minimal fee, encouraging wild betting on concurrent trends until the legislation was abandoned.