The first market crash in history was Dutch tulips - Tulipmania

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In recent memory, we’ve seen market crashes and bubble bursts revolving around different commodities: stocks, real estate, technology, mortgages, and even the banking system, itself. The fear and panic from a market crash is downright horrifying, shaking the very foundation of our economy and belief in the system to serve the individual.
But has it always been that way? We can look as far back as the Great Depression in the United States as evidence that this phenomenon of an overinflated bubble meeting a sharp pin prick is not new, but was the stock market crash of the 1920s and 30s the first? Not even close.
In fact, you’ll probably be shocked to hear that the first speculative asset to skyrocket in value and then crash entirely was Dutch tulips. That’s not a typo – I really do mean Dutch tulips. In the 1600s, certain market and geographic factors (and a whole lot of greed and irrationality) saw the price of imported tulips climb so fast – even 1,000% in one month – that some rare bulbs were worth an entire luxury home. Only months later, that same rare tulip wasn’t worth more than a common flower, sending the Dutch economy reeling. The Dutch tulip market crash was such a profound historical event that they even had a name for it: “Tulpenwoede,” or tulip madness.
The buildup.1593 Tulips were first introduced to the Dutch when traders from Turkey brought them across the seas to Europe. Legend has it that a Dutch ambassador working at the court of Suleiman the Magnificent in Constantinople, Turkey noticed the magnificent flowers and sent some to a Botanist friend in Holland.
The rich had already been in the practice of rampantly collecting luxury items from foreign shores at the time, from seashells to spices to artwork. 
When the Amsterdam stock exchange opened in 1602, bolstered by the Dutch East India Company, a thriving but informal future exchange market blossomed. Soon, flowers became a hot commodity, and among them, tulips were the most coveted.
But what probably launched the Tulipmania value explosion – and subsequent market crash – was a strange twist of fate. The tulip crops were infected with a non-fatal virus known as mosaic, which didn’t kill them, but changed their appearance, causing brilliant “flames” of color to appear on their petal.
All of a sudden, the already coveted flowers became rare and unique trophies for the rich. As a luxury item only available imported from Turkey, they had been selling at high prices before, but once the mosaic virus enlivened their appearance, the price shot up astronomically. 
Cashing in on the new tulip craze, but by the 1630s, a few tulip brokerages had opened for business, most of them wealthy merchants in the same tight circle or even family. 
The bubble inflates.Although the supply of new tulips, and especially those with the beautiful mosaic defect, was limited, people clamored to get more as the ultimate status symbol – or means to a quick profit as prices always seemed to rise. When buyers and garden centers bought as many as humanly possible, it further limited supply, fed demand, and skyrocketed prices. Traders and merchants stocked inventories of tulips as fast as they could, with no consideration for cost. 
"Neighbors seemed to talk to neighbors; colleagues with colleagues; shopkeepers, booksellers, bakers, and doctors with their clients gives one the sense of a community gripped, for a time, by this new fascination and enthralled by a sudden vision of its profitability," writes Anne Goldgar in "Tulipmania."
Soon, it seemed like everyone was dealing in tulips bulbs, and a huge secondary market emerged where people bet on their future price increases, buying and selling options, not just the flowers themselves. The common perception was that the market for these tulips had no ceiling, as they thought they could easily unload tulips to unwitting foreigners, so people started cashing in or trading their houses, land, life savings, or any other assets they owned to get their hands on more bulbs.
The craze was so out of hand that in the 1630s, a sailor was arrested and locked in a Dutch jail for eating a tulip bulb that he had thought was an onion. It was said that the mistake of eating the bulb was about the same cost as feeding his ship’s entire crew for a year!
Everyone wanted in on the tulip madness, and by 1637, values were shooting up twenty-fold every month.  And then, the bubble hit it’s ceiling over a one month period in 1637, when the price of Switsers, a popular tulip bulb, went up 1,100%, from 125 florins a pound to 1,500 a pound. 
Quite possibly, the zenith of Tulipmania was February 5 of 1637, when a historic auction was held in the town of Aikmaar to raise money for orphaned children. The prized sellers at the auction were two varietals of tulips: a Viceroy that sold for $4,203 florins and an Admirael Van Enchuysen that sold for 5,200 forins. Just how much is 4,000 or 5,000 florins? It’s enough to buy a luxury home in Amsterdam at the time. The value of these tulips had reached the point of abject lunacy. 
The bubble bursts.No one is exactly sure what happened to cause the market to crash, seemingly overnight. Some think it was traced to economic irregularities due to the Black Plague spread over Europe. Others think that the greed just hit its zenith, when people tried to sell their options and inventory more than keep buying. Or maybe someone just blinked, realizing the price increases and market craze was unsustainable. But all of a sudden, everyone wanted to sell. And the prices, which had been soaring exponentially every month, began to soften and then fall. The same mob mentality that drove the masses to buy and trade tulips out of greed turned to abject panic to get out. 
Prices completely collapsed in February of 1637. Not only did people completely stop buying, but also the huge options and futures market that revolved around the tulip trade was exposed as a house of cards. At the blink of an eye, with no buyers and a herd of sellers looking to dump their tulips or promises to buy inventory in the coming season, sellers, insurers, merchants, and bulb traders went bankrupt. 
The crash.The ensuing crash was such an economic free fall for a good portion of the population that on April 27 of 1637, the Dutch government had to step to try to stabilize the Tulipmania fallout. The federal States-General issued a proclamation that laid out a process for arbitration for those who couldn’t pay their debts or were no longer willing or able to honor their contracts. They offered a solution of allowing people to honor contracts at only 10% of their face values, with local magistrates arbitrating, but even that didn’t help. The panic that swept the nation as people realized they’d cashed in their houses, businesses, life savings, etc. in order to buy simple flowers. No amount of government intervention would help, as people couldn’t even give away the once invaluable tulips and contracts to buy them.
The damage to the Dutch economy was total; even those prudent few people who weren’t involved with the tulip trade felt the impact of the ensuing national depression. For centuries, the aftershocks felt from Tulipmania kept the people, governments, and banks of Holland notoriously risk-averse. And even today, when they see a tulip, they think of something far different than just a beautiful flower.

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