dduane

With the world markets doing what they’re doing at the moment, it’s no wonder that past crashes and bubbles are being discussed a lot on the Intarwebz. The Tulip Bubble in particular has been getting a lot of attention, maybe because it just seems so nuts now that we’re used to seeing financial madness mostly centered around the (mis)handling of various kinds of paper.

But here’s an interesting article that suggests maybe what happened with the tulips in 1636–7 wasn’t so crazy after all:

[…the Dutch] were rationally responding, in finest efficient-market fashion, to overlooked changes in the rules of tulip investing.

As European prices for the dramatic flowers rose in the 1630s, many burgomasters—local mayors—started to invest in the bulbs. But in the fall of 1636, the European tulip market suddenly wilted because of a crisis in Germany. German nobles were big fans of tulips and had taken to planting bulbs. But in October 1636, the Germans lost a battle to the Swedes at Wittstock. Then German peasants began to revolt. The German demand for tulips sagged, and princes began digging up their own bulbs and selling them….

The sudden glut caused prices to fall, and Dutch burgomasters began losing money. They were in a bind. Trade in tulip bulbs was conducted through futures contracts: Buyers agreed to pay a fixed price for tulip bulbs at some point in the future. With prices having fallen in the fall, leveraged burgomasters were tied into paying above-market prices for bulbs to be delivered in the spring.

Rather than take their lumps, these politically connected investors tried to change the market rules—and they succeeded.

At which point the thoughtful reader says, uh oh!! 

“The present regulations suck? Oh, okay, we’ll just change the rules / deregulate!” Does this sound at all familiar?… And why am I not surprised to hear Kipling muttering in the background?

Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew
And the hearts of the meanest were humbled and began to believe it was true
That All is not Gold that Glitters, and Two and Two make Four…

To my great delight, one of the columnists at the International Herald Tribune this week heard him too. He was writing more in the political mode… but whatever. (A couple of other commentators have picked up on “The Gods of the Copybook Headings” as well, excerpting one verse or another.)  For those curious about the poem’s title: “copybook headings” were proverbs, quotations or mottoes printed in perfect handwriting at the top of each page of an exercise book / notebook. You were meant to copy them down the page to perfect your own handwriting.

This is the whole from which the excerpts come, from one of the English language’s great masters of meter…and concept. 

As I pass through my incarnations in every age and race,
I make my proper prostrations to the Gods of the Market Place.
Peering through reverent fingers I watch them flourish and fall,
And the Gods of the Copybook Headings, I notice, outlast them all.

We were living in trees when they met us. They showed us each in turn
That Water would certainly wet us, as Fire would certainly burn:
But we found them lacking in Uplift, Vision and Breadth of Mind,
So we left them to teach the Gorillas while we followed the March of Mankind.

We moved as the Spirit listed. They never altered their pace,
Being neither cloud nor wind-borne like the Gods of the Market Place;
But they always caught up with our progress, and presently word would come
That a tribe had been wiped off its icefield, or the lights had gone out in Rome.

With the Hopes that our World is built on they were utterly out of touch,
They denied that the Moon was Stilton; they denied she was even Dutch;
They denied that Wishes were Horses; they denied that a Pig had Wings;
So we worshipped the Gods of the Market Who promised these beautiful things.

When the Cambrian measures were forming, They promised perpetual peace.
They swore, if we gave them our weapons, that the wars of the tribes would cease.
But when we disarmed They sold us and delivered us bound to our foe,
And the Gods of the Copybook Headings said: "Stick to the Devil you know."

On the first Feminian Sandstones we were promised the Fuller Life
(Which started by loving our neighbour and ended by loving his wife)
Till our women had no more children and the men lost reason and faith,
And the Gods of the Copybook Headings said: "The Wages of Sin is Death."

In the Carboniferous Epoch we were promised abundance for all,
By robbing selected Peter to pay for collective Paul;
But, though we had plenty of money, there was nothing our money could buy,
And the Gods of the Copybook Headings said: "If you don't work you die."

Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew
And the hearts of the meanest were humbled and began to believe it was true
That All is not Gold that Glitters, and Two and Two make Four—
And the Gods of the Copybook Headings limped up to explain it once more.

.     .     .     .     .     .     .     .     .     .     .     .     .     .     .     .     .     .

As it will be in the future, it was at the birth of Man—
There are only four things certain since Social Progress began:—
That the Dog returns to his Vomit and the Sow returns to her Mire,
And the burnt Fool's bandaged finger goes wabbling back to the Fire;

And that after this is accomplished, and the brave new world begins
When all men are paid for existing and no man must pay for his sins,
As surely as Water will wet us, as surely as Fire will bum,
The Gods of the Copybook Headings with terror and slaughter return!

…A footnote to this in passing: Kipling himself was no stranger to market-based financial trouble, bad investments and bank crashes. Chapter V of his autobiography Something of Myself tells how, on his honeymoon, halfway around the world in Japan, he suddenly discovered that his own bank had crashed, and that at the height of his (early) success he was regardless now completely broke:

Here an earthquake (prophetic as it turned out) overtook us one hot break of dawn, and we fled out into the garden, where a tall cryptomeria waggled its insane head back and forth with an 'I told you so' expression; though not a breath was stirring. A little later I went to the Yokohama branch of my Bank on a wet forenoon to draw some of my solid wealth. Said the Manager to me: 'Why not take more? It will be just as easy.' I answered that I did not care to have too much cash at one time in my careless keeping, but that when I had looked over my accounts I might come again in the afternoon. I did so; but in that little space my Bank, the notice on its shut door explained, had suspended payment. (Yes, I should have done better to have invested my 'capital' as its London Manager had hinted.)

I returned with my news to my bride of three months and a child to be born. Except for what I had drawn that morning--the Manager had sailed as near to the wind as loyalty permitted--and the unexpended Cook vouchers, and our personal possessions in our trunks, we had nothing whatever. There was an instant Committee of Ways and Means, which advanced our understanding of each other more than a cycle of solvent matrimony. Retreat--flight, if you like--was indicated. What would Cook return for the tickets, not including the price of lost dreams? 'Every pound you've paid, of course,' said Cook of Yokohama. 'These things are all luck and--here's your refund.'

Whew…