The Industry Standard writes on Tulips: Planet Web The Bloom Economy By Matthew Yeomans "What made so many people, from so many different professions, so keen to try their luck in a trade of which almost all of them were completely ignorant? The lure of profit, certainly, and the prospect of
making far more money than they had
ever had before."
Those words describe one of the biggest
boom manias to ever grip the economic
world. But it's not referring to Internet stocks ? it's tulips.
Mike Dash's new book, "Tulipomania," tracks the tulip in 17th-century
Dutch society from its rise as a new and prized flower from Asia Minor
to the largest speculative commodity ever seen.
The tulip boom is often trotted out as a favorite precursor of today's
Internet Economy ? in both, economists and analysts alike see
telltale signs of a speculative bubble. As long as people consider the
investment worthwhile, the more that investment is worth. But once
doubt enters the picture, the flower bed withers away.
In the case of Dutch tulips, the bulbs were viewed as valuable
because of the flower's beauty; a value that rose as Dutch
horticulturists grew exquisite new varieties. Soon, people from all
walks of life began to see tulips as a way to get rich quick. In 1637,
at the height of tulip mania, a single tulip bulb was traded for 5,200
guilders ? over three times as much as Rembrandt received for his
greatest work, "The Night Watch," and a figure that today would be
estimated at nearly three-quarters of a million dollars.
For Eric Janszen, the analogy is too rich to resist. Janszen, the
executive director of Osborn Capital, a Massachusetts-based venture
capital firm, created itulip.com, a satirical site dedicated to tracking
the runaway Internet Economy. Janszen started the site in 1998 in
an attempt to understand how, as he puts it, "an entire industry
grew out of a mania." Today, most of his VC friends and colleagues
"finally realize they are in a mania," as do many startups' executives
who come to him. "The psychology is that they'll get out before it
crashes," he says.
But as often as tulips are used to describe today's net economy, it's
worth noting just how deep the similarities run. One of the key
factors that drove Dutch tulip mania was the enormous amount of
new and liquid wealth in the Netherlands, created from trade with the
East Indies and from the Spanish plundering of South American gold
and silver. A fluid money supply, points out Janszen, along with a
buoyant, optimistic (and often postwar) society, and a new discovery
or technological invention, are the principle incubators of an
economic mania.
So, too, did the ballooning Internet Economy rise at the end of the
Cold War; it's since been fueled by optimism over the greatest
technological and communication innovation since the railroads 150
years ago. And railroads, Janszen suggests, offer an even neater
analogy to today's boom than 17th-century Amsterdam.
"Most of the railroad speculation took place before any track was
ever laid," he says. Ultimately, and this is why it may provide a more
succinct comparison to today, fortunes were made in the railroads
and the new industry transformed the U.S. economy, but the rail
boom took place over land rights, not service. "At the time," says
Janszen, "no one could gauge how much money could be made from
running it."
Tulipmania disintegrated once the market stopped believing a single
bulb could make them a fortune. With that, a tulip reverted back to
being just a tulip. (Today, however, the tulip growing industry is one
of the Netherlands' most important industries. And, of course, it has
its own Web site ? www.bulb.com.)
In Janszen's view, the tech stock boom has to cast its spell globally
before it will really bust. After all, he says, "To have a truly
world-class mania, the whole world has to be involved." And when will
the bust occur? That will depend on when the first group of really
powerful investors or market watchers decides Internet speculation is
not for them. In Amsterdam, it was government intervention that
burst the bubble, bankrupting thousands in the process. Within days,
the tulip was no longer the measure of great fortune.
Not that Janszen has no faith in the Internet. He's staked his career
on it, after all. For now, he's betting on the business-to-business
sector, where, he says, he's already seeing a handsome return.
thestandard.com |
