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Explaining the timing of tulipmania's boom and bust: historical context, sequestered capital and market signals

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  • McClure, James E.
  • Thomas, David Chandler

Abstract

Framing tulipmania in terms of sequestered capital – capital whose quantities, usages and future yields are hidden from market participants – offers a richer and more straightforward explanation for this famous financial bubble than extant alternatives. Simply put, the underground planting of the tulip bulbs in 1636 blindfolded seventeenth-century Dutch speculators regarding the planted quantities and their development and future yields. The price boom began in mid November 1636, coinciding with the time of planting. The price collapse occurred in the first week of February 1637, coinciding with the time of bulb sprouting – signaling bulb quantities, development and future yields. Also consistent with our explanation is the initial price collapse location, in the Dutch city of Haarlem, where temperature and geography favored early sprouting and sprout visibility.

Suggested Citation

  • McClure, James E. & Thomas, David Chandler, 2017. "Explaining the timing of tulipmania's boom and bust: historical context, sequestered capital and market signals," Financial History Review, Cambridge University Press, vol. 24(2), pages 121-141, August.
    • Handle: RePEc:cup:fihrev:v:24:y:2017:i:02:p:121-141_00
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    Cited by:

    1. James E. McClure & David Chandler Thomas, 2019. "The Impact of New-Product R&D on the Circular Flow," The American Economist, Sage Publications, vol. 64(1), pages 45-59, March.
    2. James E. McClure & David Chandler Thomas, 2021. "Schumpeter’s Fatalistic View of Capitalism: How His “Essential” Process of Creative Destruction Survived," Journal of Private Enterprise, The Association of Private Enterprise Education, vol. 36(Summer 20), pages 77-101.

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