Tulipomania - Mike Dash [53]
This, of course, was a large part of their appeal. By 1635 the regents and the great merchants of the United Provinces could choose to invest their money in a variety of ways. They could earn guaranteed interest by buying government bonds or depositing their cash with one of the many new banks that were springing up. If they felt a little more adventurous, they could buy shares at the stock exchange or purchase a stake in a local drainage project or in a ship off to trade in the Americas. Each of these investments, though, required a substantial amount of capital, and so far as the artisans, the tradesmen, and the tenant farmers of the republic were concerned, it was all but impossible to find a profitable way of investing the little money that they had. There were no mutual funds in the seventeenth century, no certificates of deposit, no personal equity plans, no tax breaks, and no tax shelters. For a Haarlem weaver investment meant buying more flax or making a down payment on a new loom. Now suddenly there was a new way of making money—one that seemed alluringly simple and straightforward, appeared to guarantee profit, and above all required little in the way of capital.
Futures trading is a highly speculative way of doing business, but it has significant advantages. It satisfies a seller, who might, for example, be awaiting a cargo due to arrive from overseas, and who is at any rate himself probably not yet in possession of whatever he is selling. He in effect sells the risk that the price of his goods will fall before he can get them to market; he can demand a deposit (say, 10 percent) of the agreed price; and being guaranteed a definite sum of money on a fixed date, he can arrange his finances accordingly. It can also be a highly profitable arrangement for a buyer, so long as he guesses correctly whether prices will rise or fall. For example, a florist who offered a hundred guilders for a promissory note guaranteeing him ownership of a Gouda when it was lifted in four months’ time wagered that he would be able to sell the note for more than that amount before he became liable to pay for the bulb. If he could actually get no more than, say, eighty guilders for his piece of paper, he would of course lose twenty guilders come lifting time, but in the constantly rising market for tulips, gambling on future prices must have seemed absurdly simple, and the chances of actually making a loss would have struck most of those who now flocked to buy bulbs as remote.
In truth, though, futures trading was anything but simple, and it was very much riskier than it at first appeared. Indeed, it was exceptionally dangerous. A florist with capital of only fifty guilders who was certain that prices would continue to rise might, for instance, throw caution to the wind and agree to purchase five of the hundred-guilder Goudas. His money would be enough to pay a deposit of 10 percent on each bulb, and if by lifting time the price of the tulips had doubled, his fifty guilders would have made him the owner of a thousand guilders’ worth of bulbs. After selling the flowers at the new, higher price, he could pay the balance of his obligation and walk away with a clear profit of five hundred guilders. Thus, if the trade remained buoyant, poor artisans could indeed hope to make huge fortunes from flower bulbs. But should the price of tulips fall, catastrophe was certain and bankruptcy all but inevitable. If Goudas halved in value, for example, the florist who had invested his entire savings of fifty guilders in bulbs would be facing a loss of two hundred guilders—a sum he could not possibly hope to pay.
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