This Time is Different: An Example of a Giant, Wildly Speculative, and Successful Investment Mania

B.E. Journal of Economic Analysis & Policy, Vol. 10, Issue 1, Article 60, 2010

23 Pages Posted: 23 Mar 2010 Last revised: 27 Feb 2012

See all articles by Andrew Odlyzko

Andrew Odlyzko

University of Minnesota - Twin Cities - School of Mathematics and Digital Technology Center

Date Written: March 17, 2010

Abstract

The collapse of an investment mania usually reminds people that the phrase "This time is different" is dangerous. Recollections of this mantra then typically either state outright or at least imply that "It is never different." However, there is at least one counterexample to this cautious view, a giant and wildly speculative investment episode that was successful. The British railway mania of the 1830s involved real capital investment comparable, as a fraction of GDP, to about $2 trillion for the U.S. today. It faced withering skepticism and criticism, much of it very reasonable, as its supposedly rosy prospects were based on extrapolation from the brief experience of just a couple of successful early railways. Yet by the mid-1840s, it was seen as a great investment success.

The example of the railway mania of the 1830s serves as a useful antidote to claims that bubbles are easy to detect or that all large and quick jumps in asset valuations are irrational. This episode also suggests the need to reexamine much of the work on business cycles and diffusion of technologies. The standard literature in this area, starting from Juglar, and continuing through Schumpeter to more recent authors, almost uniformly ignores that large investment mania, whose nature does not fit the stereotypical pattern.

Keywords: railway mania, bubbles, successful speculations

JEL Classification: E27, E37, E44, G12, G14, L92, N23, N73, O16, O33

Suggested Citation

Odlyzko, Andrew, This Time is Different: An Example of a Giant, Wildly Speculative, and Successful Investment Mania (March 17, 2010). B.E. Journal of Economic Analysis & Policy, Vol. 10, Issue 1, Article 60, 2010, Available at SSRN: https://ssrn.com/abstract=1573974 or http://dx.doi.org/10.2139/ssrn.1573974

Andrew Odlyzko (Contact Author)

University of Minnesota - Twin Cities - School of Mathematics and Digital Technology Center ( email )

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HOME PAGE: http://www.dtc.umn.edu/~odlyzko

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