April 14, 2009 - On February 5, 1637, at a tulip auction in Alkmaar, of the United Provinces (now referred to as the Netherlands), Wouter Winkel's tulip collection sold for 90,000 guilders. To place that in context a carpenter that year could expect to earn about 250 guilders, a merchant about 1,500 guilders, and a wealthy merchant about 5,200 guilders. Four barrels of beer cost 32 guilders and 1,000 pounds of cheese about 120 guilders. By any measure this was a huge sum of money. One week later, in another auction in Haarlem of the United Provinces just a few miles away, the price for tulips was zero. Thus began one of the more famous market crashes of western civilization.*
What happened? (Feel free to stop reading once it seems too familiar).
The tulip market was unregulated. No one knew exactly how many tulips there were for sale. In order to extend the sales period, the Dutch developed a system of promissory notes so that tulips could be sold before they were planted. Prices had risen steadily for more than 7 years. In fact the price was doubling every few years and then in 1635, the price started to double every few months. Weavers sold their looms to get money to buy tulip bulbs. Auctions arose in local taverns on a weekly basis, open to all to bid. Wealthy growers saw their already considerable fortunes triple in a few years. Then one day, buyers who had already maximized their ability to borrow stopped buying. Not out of a desire to stop buying but simply because all the money that could go into the tulip market was in the tulip market. If the crash had happened in the United States, I suppose we'd be talking about toxic tulips as compared to toxic peanut butter.
This same scenario has repeated itself dozens of times in Europe and in the U.S. since. We remember 1929, but the number of busts and panics in the previous century were numerous. It was this increasing occurrence of panics and crashes that created the political will and support for the New Deal. One legislative outcome was the Wagner Act which made it the policy of the U.S. to encourage union organizing. What was understood by most was that giant trusts and corporations if not controlled would create boom and bust cycles by attracting all the money to one area of the economy. By legalizing and encouraging a strong labor movement, it was understood that money would be spread among a large group of workers and the economy would grow.
From the passage of the Wagner Act until 1973, wages grew. The economy grew. Productivity grew. The standard of living of many if not most grew. The problem was that the rich were no longer as rich relative to the middle class as they used to be. They responded by slowly undermining the strength of labor. Corporations and government changed the rules. Management compensation was changed to reward managers for stock performance as compared to company performance. Economic nationalism, still preached to the masses was abandoned by the elites. Companies started to move overseas. While we were told we had to compete with Japanese workers or Chinese workers the reality was we were competing against U.S. corporations who moved overseas to take advantage of cheaper materials, cheaper energy, lower taxes, and yes on occasion cheaper labor rates. (Until the late 1970's, per unit costs for most manufacturers were still lower in the U.S. since technology more than compensated for higher wages).
Today you can not find a TV made in the U.S., although it was invented here.
The answer to the question of "Who knew?" the answer is anyone who ever played the game Monopoly.
We knew we had been fighting these changes for decades. They knew, they knew they were selling things of no value. They knew they were destroying the economic foundations of this country and they were well paid to do so.
Every day we are confronted by the dilemma.
We are told one thing; free enterprise will solve our problems while we live something different. The pink slip we receive shows us that unregulated markets do not work. Calling to India to get technical assistance for our newly purchased consumer electronic gadget made in Korea shows us that free trade isn't. Free trade is perhaps the most expensive trade there is. It is costing us our economy and our country. If global trade continues to drive up carbon pollution it may even cost us our planet.
What can we do?
There are two potential solutions. One is to talk to your children, your neighbor, and every clerk you interact with about the need to rebuild the middle class in this country and that the first step is for them to join a union. We need to organize. By that I mean, we need to organize. Not the union staff, not the union officers, but each and every one of us. Not one (1) hour a week but every second of every day. Sitting in the ball park, talk to whoever is sitting next to you about what they do for a living and how's that working for them. At the bowling alley or the mall do the same thing.
Secondly, we need to start producing things in the U.S., from cars to trinkets, from wind turbines to solar panels. We also need to keep making in America what we are now making in America. I'm tired of buying U.S. flags made in Burma. We must create value here in America.
As for me, I planted some tulips. Aside from their beauty, who knows maybe lightening might strike twice.
*For more details on the tulip bubble refer to: Mike Dash, TulipoMania, Three Rivers Press, New York, 1999.
