In the 1630s a sailor was thrown in a Dutch jail for eating what he thought was an onion. That onion was in fact a tulip bulb. The cost of the sailor's gluttony was equivalent to the cost of feeding an entire crew for twelve months. That story is probably not true—no sane person would leave something so valuable for an absent-minded seaman to chew on. But like much about tulipmania, the line between fact and fiction is blurred.

“Tulpenwoede” (tulip madness) resulted in big increases in tulip prices. At the beginning of 1637, some tulip contracts reached a level about 20 times the level of three months earlier. A particularly rare tulip, Semper Augustus, was priced at around 1,000 guilders in the 1620s. But just before the crash, it was valued at 5,500 guilders per bulb—roughly the cost of a luxurious house in Amsterdam. Prices collapsed in February 1637. 

The price swings were not caused by massive changes to production costs. Nor did tulips suddenly become particularly useful. As a result, most people assume that tulipmania was the result of financial market irrationality. That idea was popularised by Charles Mackay, a mid-19th century Scottish writer. Most modern-day references to tulipmania draw on Mackay's work. But economic historians provide better explanations for what happened.

In plain English, investors who had bought the right to buy tulips in the future were no longer obliged to buy them. If the market price was not high enough for investors' liking, they could pay a small fine and cancel the contract. The balance between risk and reward in the tulip market was skewed massively in investors' favour. The inevitable result was a huge increase in tulip options prices. (The price of options collapsed when the government saw sense and cancelled the contracts.) Spot prices (the price that traders paid for immediate delivery of tulips) and futures prices (the prices that traders would be compelled to pay for future delivery of tulips) were not volatile. And any movement of the spot/futures price was determined by simple supply and demand—the fall-out from the Thirty Years' War, one of the bloodiest in European history, was one important factor. Tulipmania was only a contractual artifact. There was no “mania” at all.