The Onion and the Sailor

This is the most famous breakfast in the history of finance.

Sometime in the 1630s, a sailor brings a Dutch merchant word that a valuable cargo has arrived. The merchant, pleased, gives him “a fine red herring for his breakfast.” On his way out, the sailor notices something that looks like an onion lying on the counter, “very much out of its place among silks and velvets.” He pockets it, figuring it’ll go well with the herring. When the merchant notices it is missing, a search goes out, and the sailor is eventually “found quietly sitting on a coil of ropes, masticating the last morsel of his ‘onion.’”

The onion was a bulb of Semper Augustus, the most coveted tulip in the Netherlands. Its value, we’re told, “might have sumptuously feasted the Prince of Orange and the whole court of the Stadtholder.” The sailor ends up in prison.

This comes from Charles Mackay’s Extraordinary Popular Delusions and the Madness of Crowds, published in 1841, which is the source of most of what people believe about tulip mania. Mackay says that by the mid-1630s the Dutch population, “even to its lowest dregs, embarked in the tulip trade.” He prints an inventory of goods that a single bulb of the Viceroy variety supposedly fetched: two lasts of wheat, four lasts of rye, four fat oxen, eight fat swine, twelve fat sheep, two hogsheads of wine, four tuns of beer, two tons of butter, a thousand pounds of cheese, a complete bed, a suit of clothes and a silver drinking cup. (Total: 2,500 florins.) And he describes the aftermath of the 1637 crash as a national catastrophe: “Many who, for a brief season, had emerged from the humbler walks of life, were cast back into their original obscurity.”

If you’ve studied economics, worked in finance, or been within earshot of anyone talking about Bitcoin, you know this story. It’s the founding parable of the speculative bubble, the cautionary tale of what happens when ordinary people lose their minds over an asset.

The sailor almost certainly never ate the onion. And on the evidence we have, most of the rest didn’t happen either.

---

Looking for the bodies

If a bubble ruins a country, it leaves a paper trail. Debts get sued over, estates are sold, wills get rewritten, people turn up in bankruptcy court. In the 2000s the historian Anne Goldgar went looking for that trail. She spent years going through notarial records, small-claims court files and wills in Haarlem, Amsterdam, Alkmaar and Enkhuizen, searching for the people who had traded tulips and for whatever had happened to them. The result was her 2007 book Tulipmania: Money, Honor, and Knowledge in the Dutch Golden Age.

She identified around 350 people involved in the trade, which she thinks is probably an undercount but not a huge one. They weren’t Mackay’s “lowest dregs.” Most were well-off merchants and skilled tradesmen, the sort of solid middle-class citizens who had money to risk. Only 37 of them were ever recorded paying more than 300 guilders for a bulb.

As for the ruin: “I couldn’t find anybody that went bankrupt,” she told Smithsonian. To be precise, she didn’t find bankruptcies she could connect to tulips. A handful of people were in financial trouble around that time, but for other reasons. The painter Jan van Goyen is sometimes held up as a victim of the tulip crash. He did die bankrupt, in 1656, nineteen years later, and land speculation seems to have done much more to him than tulips did.

That’s the hole in the middle of the legend. A national catastrophe ought to leave casualties. The archives turned up a lot of angry letters and very few bodies.

Sickness, the other one

To see where the legend came from, it helps to know what else was going on in Haarlem that winter.

Plague had been working through the Dutch Republic since 1635. On February 5, 1637, the very week the tulip market seized up, a priest named Jodocus Cats wrote a letter describing the plague that had been “raging” for two years, and then went on to describe the tulip craze as a second sickness. You can see the frame forming in real time. A city full of death was watching some of its citizens get rich trading flowers in taverns, and the obvious moral reading was that the trade was a disease too: a sin, a madness, a judgment waiting to happen.

That reading got written down fast. Within weeks of the crash, Haarlem printer Adriaen Roman published a pamphlet in the form of a conversation between two characters, Waermondt and Gaergoedt, which comes out roughly as “Truth-mouth” and “Greedy-goods.” Several more moralizing dialogues followed in 1637 and after. They were sermons in a fun costume. Their job was to make speculation look ridiculous and dangerous, and they used the most vivid stories and the highest prices they could find, mostly from the last frantic days of trading.

Goldgar traces the chain from there. In 1669 the chronicler Lieuwe van Aitzema drew on the pamphlets. The botanist Abraham Munting repeated their stories. In the 18th century the German scholar Johann Beckmann, writing a History of Inventions, collected Munting’s account. Mackay’s main source was Beckmann. At every step, the stories lost their origins and gained authority. By the time they reached Mackay they weren’t moral tracts any more. They were history, and Mackay, who was writing a book about how easily crowds believe things, believed them.

As for the sailor, nobody has found him in the Dutch records, and historians treat him as fiction.

What the record actually supports

Something did happen in 1636–37. The revisionists don’t say otherwise. Here’s the documented version.

The flowers were real luxuries. The most prized tulips were “broken” ones, with streaks and flames of color feathering through the petals. Nobody understood at the time that the flames were a symptom. In the 1920s, work by Dorothy Cayley at the John Innes institution showed that “breaking” was transmissible, and it’s now known to be caused by a virus spread by aphids. The virus also weakened the bulbs, so the most beautiful varieties produced offsets slowly and stayed scarce. Semper Augustus was one of those diseased beauties. A price around 5,500 guilders for one in 1637 is documented, and it was a fortune.

There was a real market. From the summer of 1636, people traded bulbs in tavern back rooms, in groups called “colleges,” with their own rules and small fees paid as “wine money.” Trading was mostly in contracts for bulbs still in the ground, to be delivered after the growing season. Nobody had to show they had the money or the bulb. The Dutch called it windhandel, trading in wind.

There was a real crash. In the first week of February 1637 the buyers vanished. A satirical source dates the start to February 3 in Haarlem, when an auction found no takers even as the price dropped. The last recorded prices are from February 5.

And there was real damage, of a particular kind. Since most of the trades were promises, the crash meant buyers simply refused to pay. Sellers had little recourse, because the courts were mostly unwilling to enforce the contracts. Eventually the authorities stepped in to suspend them. Paper losses largely stayed on paper. What broke, in Goldgar’s account, was something harder to measure: trust. This was a commercial society that ran on reputation and the honoring of one’s word, and in February 1637 a lot of respectable people discovered that a lot of other respectable people would walk away from a deal. That was the shock, and it was cultural rather than economic.

Two economists and a drinking game

Economists have had their own run at the story.

Peter Garber, in a 1989 paper and later in his book Famous First Bubbles, argued that the prices of rare bulbs weren’t evidence of madness at all. A new, scarce variety is a growing asset, because one bulb becomes several over a few years. Its price ought to be high at first and then fall as supply catches up. Garber compared the decline after 1637 to how rare bulb prices normally behaved. The prized 1637 varieties fell about 32% a year through 1642. Rare tulips in the 18th century, with no mania anywhere in sight, fell about 28.5% a year. That’s not the profile of a bubble bursting. It looks like an ordinary luxury good getting less rare.

Garber did find one thing he couldn’t fit. In January 1637, the common bulbs, cheap varieties sold by weight rather than individually, shot up something like twentyfold and then collapsed. He didn’t pretend that was rational. He called it a “meaningless winter drinking game” played by a “plague-ridden population,” which is perhaps the most Dutch-Golden-Age explanation possible.

In 2007 Earl Thompson offered a different account of that final spike. He argued that the mania was “an artifact created by an implicit conversion of ordinary futures contracts into option contracts.” The version usually given (I’m working from summaries here, not the paper itself) is that in late February 1637 the florists’ trade agreed that recent contracts could be cancelled for a small fraction of the price. If traders expected that kind of escape hatch, a high price on a contract wasn’t really a high price: it was the cost of an option you could walk away from cheaply. People will happily sign for a fortune they don’t expect to pay.

Garber and Thompson don’t agree with each other. Neither of them, though, needs a whole nation going insane.

The sermon that won

So here’s a fair summary of tulip mania. It was a real, short speculative episode in a few Dutch towns, mostly among people who could afford it. The rare bulbs were priced roughly the way rare things are priced. The common bulbs had a brief, genuinely strange spike in a plague winter, which might have come from contract rules or from a lot of people drinking in taverns. Then there was a crash, a wave of broken promises, some legal mess, and a great deal of embarrassment. Very little ruin.

It’s tempting to end with the obvious irony that Mackay’s book about the madness of crowds is itself an instance of the madness of crowds. A juicy story got passed from hand to hand, each owner valuing it more than the last, until it was worth far more than anything backing it. That’s true. I don’t think it’s the most interesting part.

The most interesting part is who won. In 1637, a group of moralists in a plague-stricken city looked at a trading frenzy and decided to describe it as a sickness and a sin. They wrote it up as cartoon dialogues, with greedy fools and ruinous prices, to frighten people away from speculation. In their own time they were pamphleteers, and their pamphlets were one voice among many.

Two centuries later a Scottish journalist picked their stories up without the labels. Two centuries after that, the stories are taught in business schools, cited by central bankers, and brought out every time a stock, a coin or a house price goes up too fast. Every financial journalist who reaches for the tulips is, without knowing it, delivering a Calvinist sermon from 1637, more or less intact, with the sailor and his onion still in it.

The traders of Haarlem lost some money and a lot of face. The preachers got everything they wanted. It just took four hundred years for the sermon to fully pay out.

---