| February 23, 2024

I have been thinking differently lately about the Dutch tulip mania of the seventeenth century. Yes, I know, that makes me a bit of a weirdo. Most people know of the tulip bubble from Charles Mackay’s Memoirs of Extraordinary Popular Delusions and the Madness of Crowds. What we know is that the Dutch people developed a taste for tulips and bid the price of bulbs to levels that seem inconceivable today. Mackay’s belief that the mania brought down the Dutch economy is less plausible.

What has me thinking about Mackay’s “Tulipomania” is how tulip bulbs signaled the quantity of excess cash sloshing around the Dutch economy. I doubt that a cash-poor nation could have driven the price of a single bulb to a reported year’s salary, just as I do not believe that our economy could drive the price of cryptocurrencies to similarly delusional heights without immeasurable amounts of excess cash available.

We can forgive the Dutch for their mania. Tulips are beautiful and a rich society can spend a lot on luxury goods. Freed from Spanish domination and flush with the profits of global trade, the Dutch also spent lavishly on paintings. Vermeer’s The Milkmaid is a marvel to ponder with its wonderful use of light, shading, lush colors, and exceptional detail. His Girl with a Pearl Earring became a moderately successful film in 2003. Clearly, the wealth generated by globalization provided many Dutch with the means to splurge on things of beauty. Sometimes these were things of transient value (tulip bulbs) and at other times objects of enduring value (art by Rembrandt van Rijn, Johannes Vermeer).

When I ponder the disconnect between the price of stocks and the earnings of companies, crypto seems to me a good modern indicator of excess cash sloshing around in the economy. Unlike tulips and paintings, which are useful and beautiful, the true value of crypto is zero. Yes, if you are a criminal or oligarch looking to launder money, sell drugs, or engage in human trafficking, crypto is useful. For the average investor, it is a symbol that too many people with no understanding of value are in possession of excess cash.

From an investment standpoint, assets with no dividends and a promise of outsized rewards in the future often increase in price when interest rates are very low. Crypto, with no earnings, no dividends, no assets, and no prospects for any in the future, seems to indicate that there will continue to be a tailwind for speculative investments until the excess cash runs out.

Which brings us back to the importance of distinguishing fleeting from enduring value. I do not know what The Milkmaid would fetch on the market today, but I do know that it is priceless.