It is a modern calamity that contemporary humanity holds itself to be more intelligent than ancient man. It is a modern tragedy that contemporary society holds itself to be more wise. This is a consequence, in my view, not of the illusion of central position as it is to the illusion of linear progression. In the West it is commonly held that because of our demonstrated mastery of technology we possess greater wisdom than all that have become before. This is, of course, a modern conceit.
The truth is that if you stand modern man against his ancient counterparts one will discover that each is possessed of equal intelligence, ingenuity and wisdom. The singular advantage possessed by modern man is that he is the happy beneficiary of all that has gone before. This is attributable to two things: first the invention by ancient man of writing and, secondly, the building by modern man of global markets. Both of these developments have worked hand-in-glove to reduce by degrees the pressing necessity of constantly re-inventing the wheel, making it possible not only to record discoveries but increasingly to share those discoveries with the rest of the world. This has made it unnecessary to continually prove the Pythagorean Theorem, freeing us to explore new intellectual and increasingly technical frontiers. I say this by way of demonstrating that although knowledge is cumulative and somewhat linear, intelligence and wisdom are not. In the latter respects modern and ancient man are the same animal, born to the same sins, activated by the same motives, subject to the same tragic hubris.
As a young man I lost a long summer deep in the study of economics. It was then that I discovered the works of Professor Galbraith who brought to the ‘dismal science’ not only a breath of fresh air but a biting historical criticism of today’s collective misunderstandings. It was in my reading of one of the learned professor’s many works that I encountered Tulip Mania.
“The term Tulip Mania…is used metaphorically to refer to any large economic bubble. The term originally came from the period in the history of the Netherlands during which demand for tulip bulbs reached such a peak that enormous prices were charged for a single bulb.” (1) Introduced from Turkey into the Netherlands (then called the United Provinces) the flower began to be cultivated around 1593 “when Charles de L’Ecluse first bred tulips able to tolerate the harsher conditions of the Low Countries…The flower rapidly became a coveted luxury item and status symbol. Special breeds were given exotic names or named after Dutch naval admirals. The most spectacular and highly sought-after tulips had vivid colors, lines, and flames on the petals as a result of being infected with a tulip-specific virus known as the ‘Tulip Breaking potyvirus.” (1)
By “1623, a single bulb of a famous tulip variety could cost as much as a thousand Dutch Florins” (1). This single Tulip bulb would cost nearly 7 times the annual income (150 Florins) of the average Dutchman. “By 1635, a sale of 40 bulbs for 100,000 florins was recorded. By way of comparison, a ton of butter cost around 100 florins and ‘eight fat swine’ 240 florins.” A record, of sorts, was set at Haarlem with the sale of a single bulb—the Semper Augustus—for 6,000 florins. (1) “By 1636, tulips were traded on the stock exchanges of numerous Dutch towns and cities. This encouraged trading in tulips by all members of society…Some traders sold tulip bulbs that had only just been planted or those they intended to plant (in effect, tulip futures contracts) (1)
In February, 1637 the bubble burst. Traders could no longer command bulbs at these inflated prices and began to sell. A panic developed as the market, made up as it is of herd animals, moved almost as one in a stampede to unload themselves of their precious bulbs. “Some were left holding contracts to purchase tulips at prices now ten times greater than those on the open market, while others found themselves in possession of bulbs now worth a fraction of the price they had paid. Allegedly, thousands of Dutch, including businessmen and dignitaries, were financially ruined.” (1). The crash of the ‘tulip market’ led to what would today be called a mild or moderate economic depression lasting a number of years (2).
This little historical incident—although no minor thing to the affected Dutch—demonstrates how the market, in this case a commodities market, can by distorting economic value lead to pathologies resulting in long term hardship. In this case speculation, driven by age-old avarice and greed, produced a virtual mania that created a total disconnect between the market value and the real value of the commodity. Wealth was being won or lost in the euphoria generated by a speculative craze which, feeding upon itself, lost all connection with real value. In the end, as it must, a day of reckoning fell upon the Dutch. The mania and its euphoria were replaced with a hard and stern reality proving once again that real wealth is always rooted in the production of goods and services that meet the needs not of markets but of consumers.
It is comforting to the modern psyche to reflect that these events happened nearly 400 years ago, and the ensuing temptation is altogether too great to look upon them as the folly of an earlier age when things were not so clearly understood. We, possessing as we do a greater technical command if not a greater wisdom, are seen as beyond the reach of such folly. But read Galbraith’s The Great Crash or Merriner Eccles’ account (previous post) of the origins of the Great Depression and one must immediately understand that although we are in possession of ever more powerful machinery, the same animal is at the controls.
“When hands outrun the wisdom of the mind”, grandmother used to admonish. Here in these words, reflecting a wisdom born of the tragedy that was the twentieth century, one can easily conjure images of a three-year old child in control of a bulldozer. What she was teaching all those years ago is that the intellectual superiority of contemporary man is a modern conceit and that the only real difference between then and now is the level of our technology. But to what purpose if we have not matched this advance in knowledge with similar advances in wisdom?
Today we have at our disposal technologies our ancestors could envision only in their dreams. We have instant electronic communication that has transformed the entire planet into a ‘global village’ making it possible, among other things, to transfer huge sums of wealth instantaneously around the world. We have the power to move and to shake the earth. But we are still, alas, the same man. Now instead of riding astride a toy truck we are at the controls of a huge earth mover. Instead of constructing a relatively small house of cards in tulip speculation we have erected a towering castle in the sand in the form of derivatives that dwarf not simply the markets of the United Provinces, or Wall Street, but are now several times the size of the world economy itself. “When hands outrun the wisdom of the mind”, it is always wise to listen to one’s grandmother.
2. Galbraith, J.K., A Short History of Financial Euphoria. Penguin Books, New
York, NY, 1990 pg. 34
3. See also Galbraith, J.K., The Great Crash 1929, Houghton Mifflin Company,
Boston, Mass. 1961 199pgs.