The Most Famous Bubble in History Probably Never Happened

People discussing bubbles almost always begin with tulips. In seventeenth-century Holland, a single bulb became worth a house; the collapse brought waves of bankruptcy and left the whole country reeling. It is a well-made fable. Perhaps a little too well made.

The source of this story is fairly clear: Extraordinary Popular Delusions and the Madness of Crowds, written in 1841 by the Scottish journalist Charles Mackay. Many of the dramatic details familiar to us owe a great deal to this book, written two hundred years after the events.

More recently, historian Anne Goldgar re-examined Dutch primary sources. A much quieter picture emerged. Trading mainly involved a small part of the wealthy merchant class, with a limited number of participants. She found no chain of bankruptcies, no records of suicides and no evidence that the economy had been devastated. Many contracts reportedly faded away without ever being settled.

Prices did, of course, rise extraordinarily and then fall. This is not to say that nothing happened. But the scale and damage differ greatly from the inherited fable. Incidentally, the beauty of those highly priced striped tulips is thought to have resulted from a virus. What people wanted most was a flower's disease.

What interests me is why we want to repeat this story so often. Bubble fables are comforting. They let us believe that the foolish people belonged to the past, while we, knowing the lesson, are different. Yet remembering the story more readily than the facts may itself be the most human form of collective excitement.