Amsterdam, 1630: ‘Tulip Mania’ – Keystone in the Debt-Based Economic Vault Where All Today’s Money has… ummm, Gone?

(Copyright Tom Dennen)

We all understand the concept, ‘Debt is Money’ but… Tulips?

The crippling practice of ‘usury’ – lending money and raising interest rates on the loan – can be traced back more than three thousand years, from which time it has always been despised, condemned, restricted or banned by moral, ethical, legal and religious bodies, including ruling governments. until the middle of the 17^th Century,

There was another way to part the peasants from their pennies and the government of Holland – along with selected rulers from all over Europe – were treated to a well-kept secret – a secret developed after war between Venice and Genoa resulted in suspension of prestiti interest payments in the early 1380s. When the market was restored, it was at a lower interest rate. Venice’s bonds traded at steep discounts for decades thereafter. Other blows to financial stability resulted from the Hundred Years War, which caused monarchs of France and England to default on debts to Italian banks, and the Black Death, which ravaged much of Europe. Still, the idea of debt as a tradable investment endured.

As with bonds, the concept of stock developed gradually. Some scholars place its origins as far back as ancient Rome. Partnership agreements dividing ownership into shares date back at least to the 13th century, again with Italian city-states in the vanguard. Such arrangements, however, typically extended only to a handful of people and were of limited duration, as with shipping partnerships that applied only to a single sea voyage.

The forefront of commercial innovation eventually shifted from Italy to northern Europe. The Hanseatic League, an alliance of mercantile cities such as  Bruges  and  Antwerp, operated counting houses to expedite trade.

By the late 1500s, English merchants were experimenting with joint-stock companies intended to operate on an ongoing basis; one such was the Muscovy Company, which sought to wrest trade with Russia away from Hanseatic dominance.

The next big step occurred in the Netherlands. In 1602, the Dutch East India Company was formed as a joint-stock company based in six locations with shares that were readily tradable. The stock market had begun, but since stocks were not allowed to be traded with multiple addresses for a company, the stocks were redesignated as coming just from Amsterdam.

The secret was overwhelmingly convincing demonstration that greed among the middle classes could be controlled through specific forms of financial manipulation over and above the predatory lending and other practices the demonstrators – money lenders – had perfected over eons.

(Early goldsmiths had always  been removed from every society in which they set up usurious lending practices until this demonstration four hundred years ago - See Tacitus below).

That demonstration was I believe actually an experiment, not an anomaly. It is called ‘Tulip Mania’ today, still an unexplained economic mystery, but acknowledged by some as the first stock market ‘Pump & Dump’ in history.

So, as far as I know, this is the first serious attempt to unlock the ‘Tulip Mania’ mystery by giving it a plausible context and I hope it spurs further research, although from now on, I am going to regard – and write as if (my interpretation) is the truth until a better one comes along.

Here is an abstract from a UCLA paper by Earl A. Thompson and Jonathan Treussard on what we understand about it today:

“The famous tulipmania, which supposedly saw the price of a single tulip bulb rise to the value of a luxury house in 17^th century Amsterdam, was an artifact created by an implicit conversion of ordinary futures contracts to option contracts in a largely failed attempt by several Dutch burgomasters to bail themselves out of previously incurred speculative losses in the normal, fundamentally driven, market for Dutch tulip futures.”

Well, artifact I believe it certainly was (and the language is as dutifully complicated as the language of anything we really don’t understand is, like economics!)

In the early 1600s The Dutch started joint stock companies, which let shareholders invest in business ventures and get a share of their profits – or losses.

In 1602, the Dutch East India Company issued the first shares on the Amsterdam Stock Exchange. It was the first company ever, four hundred years ago, to issue stocks and bonds. In 1688, the trading of stocks began on a stock exchange in London.

I don’t know who might supply the answer to the question, “where did that idea come from?” but I make guesses based on my own speculation which I call Encompassing The Historian’s Opinion through Studies – (ETHOS) – but only because, being an American, I stick to the Acronymic knitting.

My ETHOS says that goldsmiths may have become tired after four thousand years of back-to-back forced removals, and so opened their free money trough in Amsterdam to ‘invited guests only’, introduced them to the concept of stock market manipulation, showed them exactly how to control markets - with tulips! to prove beyond doubt that it could be done with any commodity - and then got down to the business they are in today, starting with the first massive ‘transfer of wealth’ with the South Sea Bubble.

My ETHOS also tells me that all the other money-siphoning structures, from predatory lending to inflating property bubbles (or dot com bubbles) to war profiteering (making money by killing people and destroying resources) were introduced by these control addicts.

Is there another explanation for a world wracked, twisted and enslaved by such a simple thing as debt?

My ETHOS can’t find any, but in my search so far, all roads lead straight through the open door of Amsterdam down the time line to the early goldsmiths.

This is what happened in Rome when goldsmiths took over its banking system: from Tacitus 27 AD, the original Investigative Journalist:

“Meanwhile a powerful host of accusers fell with sudden fury on the class which systematically increased its wealth by usury in defiance of a law passed by Caesar the Dictator defining the terms of lending money and of holding estates in Italy, a law long obsolete because the public good is sacrificed to private interest. The curse of usury was indeed of old standing in Rome and a most frequent cause of sedition and discord, and it was therefore repressed even in the early days of a less corrupt morality. First, the Twelve Tables prohibited any one from exacting more than 10 per cent., when, previously, the rate had depended on the caprice of the wealthy. Subsequently, by a bill brought in by the tribunes, interest was reduced to half that amount, and finally compound interest was wholly forbidden. A check too was put by several enactments of the people on evasions which, though continually put down, still, through strange artifices, reappeared. On this occasion, however, Gracchus, the praetor, to whose jurisdiction the inquiry had fallen, felt himself compelled by the number of personsendangered to refer the matter to the Senate. In their dismay the senators, not one of whom was free from similar guilt, threw themselves on the emperor’s indulgence. He yielded, and a year and six months were granted, within which every one was to settle his private accounts conformably to the requirements of the law. 

Hence followed a scarcity of money, a great shock being given to all credit, the current coin too, in consequence of the conviction of so many persons and the sale of their property, being locked up in the imperial treasury or the public exchequer. To meet this, the Senate had directed that every creditor should have two-thirds his capital secured on estates in Italy. Creditors however were suing for payment in full, and it was not respectable for persons when sued to break faith. So, at first, there were clamorous meetings and importunate entreaties; then noisy applications to the praetor’s court. And the very device intended as a remedy, the sale and purchase of estates, proved the contrary, as the usurers had hoardedup all their money for buying land. The facilities for selling were followed by a fall of prices, and the deeper a man was in debt, the more reluctantly did he part with his property, and many were utterly ruined. The destruction of private wealth precipitated the fall of rank and reputation, till at last the emperor interposed his aid by distributing throughout the banks a hundred million sesterces, and allowing freedom to borrow without interest for three years, provided the borrower gave security to the State in land to double the amount. Credit was thus restored, and gradually private lenders were found. The purchase too of estates was not carried out according to the letter of the Senate’s decree, rigour at the outset, as usual withsuch matters, becoming negligence in the end. 

Rome? Sounds more like Wall Street.