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Red-Blooded Risk: The Secret History of Wall Street by Aaron Brown

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Money

Why not sell the goods for money instead? Money, which meant silver coin in Holland at the time, was not very stable. Inflation was high; prices doubled in the 20 years from 1606 to 1626. Worse, debasement was a chronic problem. This is true everywhere precious metal money is used, but it was particularly severe in Holland at this time for several reasons. The Thirty Years War required enormous expenditures, which were often financed by debasement of coins. Holland had a small, open economy, meaning that coins flowed into it from all over Europe; when people send coins, they send the lightest ones, the most debased ones. Finally, central authorities were weak in Holland, so individual state banks and independent mints were able to get away with more debasement than was tolerated in other countries.

This did not amount to a large problem for someone who wanted to sell goods and buy other goods immediately with the proceeds. But a tulip was a far better store of value. It was a reasonably good medium of exchange as well, especially as the amount of trading increased and tulip futures were introduced. It could be held indefinitely between purchases, increasing rather than decreasing in value, and it could even be held as an annuity. The futures allowed as much money to be created as was needed for transactions, and paper contracts are even easier to transport than tulips—and they can't die. The futures also made it convenient to hold a diversified portfolio of bulbs and not ...

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