Austrian bubbles need some sort of expansion in the money supply, by definition. To provide this, French works through several threads in far more detail than this review provides, to gear the underpinnings of a necessary money supply growth:
* Following the regular gold debasements of the previous century instigated by Charles V, the Holy Roman Emperor who ruled over the Netherlands, the Dutch revolt of the late 1560s instituted a policy of "free coinage", whereby any amount of precious metal brought to the Dutch republican state would be minted "free" of charge and returned as the same weight of precious metal in the form of coins. (This "free coinage" policy came to the Netherlands by way of the Dutch East Indies, via the Portuguese and the Moslem governments of India.)Thus, we see already that three government interventions were settled into place before Tulipmania began; "free coinage" of money (i.e., Dutch taxpayers forced to subsidize minting, thereby sucking in specie from all over Europe), legal-tender laws (ripped apart by Gresham's law, which created a flood of debased and clipped overvalued money to push out newly minted undervalued money), and an imposed monopoly via the Bank of Amsterdam to counteract the two previous interventions (as often happens with government interventions in the free market, where one wrong-headed intervention generates a chain-reaction of further wrong-headed interventions).
* This anti-imperial policy encouraged a rising flow of specie to the port of Amsterdam, especially from the Spanish silver mines in South America and from as far afield as Japan. This was especially true after the mercury amalgamation process was invented in the middle of the 16th century, which boosted the production of silver, particularly with the opening of the Peruvian Huancavelica mercury mine in 1572 and the discovery of the Potosi silver mine in Bolivia, a single source which produced 45,000 tons of pure silver between 1556 to 1783.
* Due to various complications of Dutch legal-tender laws, the Bank of Amsterdam was founded in 1609 and given a state monopoly on the trading of all specie.
So much for a "free market" then. But French has more to add before he is finished; his colorful brushstrokes lay down two more Vermeerian layers of light and shade before the ultimate dénouement:
* The city of Amsterdam, released from the strictures of the Holy Roman Empire, became a center for world free trade, thus sucking in even more specie. (Hurrah!)Thus, the scene was pregnantly ripe for speculation and malinvestment in the usual bubble pattern of a typical boom and bust, which manifested itself in something quaintly Dutch; the buying and selling of tulip bulb futures.
* The Dutch state naval fleet, one of the most effective in the world at the time, often seized huge volumes of gold bullion from the Portuguese eastern empire and silver bullion from the Spanish western empire. (Boo!)
Thus we have a fourth violent state intervention, though tempered by the more noble causative factor of free trade, boosting the supply of currency to the Dutch homeland. And so the varnished picture is ready for a gilt frame:
* Kings around Europe regularly debased and clipped their nation's coins, thus many people sent their bullion to the Netherlands, which practiced a republican policy of "honest" money, to protect their wealth from royal avarice.
* The Dutch state policy of providing "free coinage" meant that more bullion was turned into coin than a free market would otherwise have produced.