I’ve heard the comparison of tulip mania to the dot-com bubble, the real estate bubble, and now crypto bubbles before, so I took it as a matter of historical fact that the Dutch were speculating like crazy on tulip bulb prices. Turns out some historians and economists think tulip mania is more of an urban myth, based on the analysis of one writer in 1841.

Prices did soar in a very short time, but it was not because the entire population was nuts about tulips. It was fat cats manipulating the market in their favor.

Sounds like a bubble. But it wasn’t, asserts Thompson, who is working on a history of bubbles. Tulip-bulb investors were neither mad nor delusional in 1636 and 1637. Rather, he says, they were rationally responding, in finest efficient-market fashion, to overlooked changes in the rules of tulip investing.

As European prices for the dramatic flowers rose in the 1630s, many burgomasters—local mayors—started to invest in the bulbs. But in the fall of 1636, the European tulip market suddenly wilted because of a crisis in Germany. German nobles were big fans of tulips and had taken to planting bulbs. But in October 1636, the Germans lost a battle to the Swedes at Wittstock. Then German peasants began to revolt. The German demand for tulips sagged, and princes began digging up their own bulbs and selling them, say Thompson and Treussard.

The sudden glut caused prices to fall, and Dutch burgomasters began losing money. They were in a bind. Trade in tulip bulbs was conducted through futures contracts: Buyers agreed to pay a fixed price for tulip bulbs at some point in the future. With prices having fallen in the fall, leveraged burgomasters were tied into paying above-market prices for bulbs to be delivered in the spring.

Rather than take their lumps, these politically connected investors tried to change the market rules—and they succeeded. First, they threatened to abandon their contracts and leave planters in the lurch entirely. But ultimately, they ironed out a deal whereby the obligation to purchase bulbs at a fixed price would be suddenly converted into an opportunity to do so. In current parlance, they aimed to transform tulip-bulb futures contracts into tulip-bulb options.

slate.com

So, tulip mania was more like the 17th century version of the modern-day manipulation of the gold and silver markets or the LIBOR.

Or bank deregulation of the 1980s.