Economics Greed: The Dark Side of Human Motivation

Economics Greed: The Dark Side of Human Motivation ← Series Home Key Takeaways The Primacy of Trust: Early modern commercial society relied entirely on a dense network of **honor and mutual credit**. Futures trading in tulips depended on these agreements for execution months after the initial contract. The Real Cost of Greed: The destruction associated with the crash was **not primarily financial** little economic distress was caused by the end of the mania. Instead, the crisis was one of **value, honor, and trust**. Wholesale Breaking of Promises: When prices collapsed in February 1637, buyers simply refused to honor their paper deals, acting **"in bad faith"** by denying promised transactions. They often justified their default by saying, **"I will do as another does"**. Authority Vacuum: Governmental authorities, paralyzed by the vacuum of solutions, offered little help, leading to a period of frustrating dithering and failed compromises (such as the unadopted 10% payment proposal). The speculative manias of the 17th and 18th centuries whether concerning tulips, Mississippi scrip, or South Sea shares all depended on a crucial but often unstated precondition: the structure of honor and credit that bound early modern society together. Commercial relations were built on a series of complex calculations about credit, requiring individuals to understand fully the reciprocal debt relations of their business partners. The tulip trade, which operated overwhelmingly as a futures market for common bulbs, was the ultimate expression of this reliance on paper promises. Deals made in October did not come to fruition until the “dry bulb time” in the summer. A futures trade relies on trust because, unlike a spot trade, it involves delaying the execution and payment of the promise for months. The entire fabric of this system, from the initial contract to the final delivery, was thus predicated on mutual faith that the promise would be kept. In short, “Without honor there was no credit, and without credit no honor”. ...

Economics Greed: The Dark Side of Human Motivation ← Series Home Key Takeaways The Panic of Social Inversion: The greatest moral fear generated by the tulip trade was the breakdown of established class hierarchy, leading to the scandalous inversion of the social order. The Propaganda Target: Pamphlets obsessively targeted **weavers** and the "foul rabble" as those using quick, dishonest wealth to become **"schijn-heeren"** (seeming-gentlemen) who dined like lords on Zandvoort fish. The Reality of the Speculators: Archival data contradicts the propaganda, showing that participants were generally **middle-level merchants, professionals, and higher-skilled craftsmen** (petty bourgeoisie), not low-level laborers like chimney-sweeps. A Sickness of the Head: The peak of the speculation in common bulbs (January 1637) occurred during a major outbreak of the **bubonic plague**; contemporaries explicitly linked the "sickness of the *blommisten*" (florists) to the literal sickness of the city. The astonishing price rises generated by financial speculation inevitably lead to rapid, unearned wealth for a few, shattering the social expectations built on generations of patient accumulation. In the Dutch Golden Age, where social order was highly valued, this phenomenon was viewed not merely as bad finance, but as a moral inversion of the natural world. Critics of the tulip trade focused intensely on social mobility, fearing that the unbridled and rapid acquisition of wealth by the lower classes would completely reverse the structure of society. Pamphleteers worried specifically about the blurring of rank, lamenting that “Flora who made weavers and tailors and other foul rabble into coach and horse-riders” who were seen “dominating, almost like little lords” in the inns. To those who valued stability, the idea that a weaver could suddenly become indistinguishable from a wealthy rentier was unconscionable. Such new money men were ridiculed as “schijn-heeren,” or “seeming-gentlemen”. The core pattern of greed, therefore, was its power to democratize riches and, in doing so, destroy social harmony. ...

Economics Greed: The Dark Side of Human Motivation ← Series Home Key Takeaways The Velocity of Paper: The intense speculative frenzy in the Dutch Tulipmania was primarily a phenomenon of a futures market, where bulbs were sold entirely **"on paper"** from mid-September onward, accelerating price swings twentyfold in a single month. Macro Greed, Government Scale: The Mississippi and South Sea Bubbles were not simply crowd folly, but **grandiose macroeconomic schemes**—large-scale **government debt-for-equity swaps**—backed by the entire apparatus of the governments of England and France. The Plausible Theory: Speculators gather around **convincing theories**, not each other. Law's scheme was initially a **plausible theory** for revitalizing the French economy through financial innovation, lending credibility to the resulting price surge. The Destruction of Honor: The critical system flaw in all early manias was the dependence on **honor and credit** to uphold paper promises. The collapse of the tulip trade manifested as a wholesale **breaking of promises** (or "bad faith") by buyers who refused to receive and pay for worthless goods. The most shocking element of the Dutch tulip speculation—the rapid, astonishing rise in prices—was fundamentally driven by a simple, yet powerful, mechanism: the futures market. While the high prices of rare bulbs were a “standard feature of markets in newly developed varieties,” the notorious “mania” centered on the common bulbs was an extremely short-lived phenomenon: a frenzy lasting only one month between January 2 and February 5, 1637. ...

Economics Greed: The Dark Side of Human Motivation ← Series Home Key Takeaways The Crisis of Reality: The astonishing valuation of tulip bulbs disrupted all previous economic and cultural certainties, creating fundamental confusion over **what was valuable, worthy, and real**. The Rise of the 'Goldist': The mania was fundamentally driven by **avarice**, leading critics to label speculators not as flower enthusiasts but as **"goldists"** who sought "odious" gain over honest, traditional toil. Social Inversion: Pamphleteers condemned the sudden acquisition of quick wealth, which blurred class lines and led to the terrifying spectacle of artisans and "foul rabble" becoming "schijn-heeren," or **"seeming-gentlemen,"** thereby dominating society and reversing the proper order of things. Betrayal of Trust: The collapse did little financial damage initially; the true crisis was a **social and cultural shock** resulting from the wholesale breaking of promises and the resulting destruction of the **honor and credit** necessary for society to function. The legendary prices paid for tulip bulbs, such as the Viceroy (reputedly worth a long list of actual commodities), immediately established the speculative phenomenon as a moral problem, not just a financial one. The value system of the Dutch Golden Age was suddenly thrown into disarray: what was valuable, what was worthy, and what was real. Critics were incredulous, unable to conceive why a tulip—a transient flower—should be valued so highly. The flower was not noticeably better than any other and was considerably less tangibly valuable than standard commodities or treasures. ...

Economics Greed: The Dark Side of Human Motivation ← Series Home Key Takeaways The Absurdity of Value: The high price of tulips, such as the Viceroy, was so astonishing that contemporaries created lists of goods (wheat, oxen, wine) of equivalent value, putting all existing economic certainties into disarray. The Legend is Propaganda: The enduring narrative of pervasive stupidity and madness is drawn almost entirely from satirical pamphlets and moralistic propaganda published immediately after the crash, rather than objective financial records. A "Sickness of the Head": Contemporaries, including the priest Jodocus Cats, described the mania as a "sickness" or "craziness" driven not by love of flowers, but by the "odious" pursuit of private, quick profit over honest toil. The Futures Mechanism: The market allowed prices to surge twentyfold in a single month because the entire trade was essentially a futures market conducted entirely "on paper," delaying delivery and payment until the summer. Whenever financial instability flares up, particularly concerning highly speculative assets, the Dutch Tulipmania of the 17th century is invoked almost ritually as a warning against speculative excess. The image that has become legendary a story of huge fortunes won and lost is focused on the most improbable of all financial objects: the tulip bulb. The enduring power of this historical pattern lies in the sheer, bewildering absurdity of the object being valued. ...