Comments on: The First Tech Bubble: 1720

By: Barkley Rosser

Barkley Rosser — Sat, 26 Sep 2009 19:51:33 +0000

Let me go back to the original argument. The three “innovations” in finance were institutional, but they had nothing to do with technology. It is not comparable to say some change in the financial system arising due to the invention of the internet and the emergence of online banking, or the invention of computers and advanced software leading to automated trading systems.

As for the reconfiguration of international trade, cross-Atlantic trade had already been going on for several centuries by 1720. The more historically astute Charles Kindleberger identified what lay behind the two bubbles as being the Treaty of Utrecht in 1713, which certainly had nothing to do with technology. It ended the War of the Spanish Succession, thereby ending seafaring wars that had been disrupting trade routes that already existed. This period coincided also with the peak of piracy, which would also begin to subside as the period of peace became increasingly established.

By: Lorenzo

Lorenzo — Sat, 26 Sep 2009 19:14:28 +0000

What about all those Efficient Market Hypothesis adherents who tell us there are no such things as bubbles?

In my naive way, I would have thought purchases of assets based on expectations of rising value in excess of actual increases in income from the assets would be a bubble. Surely, that is what happened with the housing bubbles, for example.

By: Tim Tyler

Tim Tyler — Sat, 26 Sep 2009 06:42:19 +0000

Re: “The general lesson: it is easy to over-estimate the profits to be gained by first-movers exploiting even very large innovations.”"

I think it would be bad to draw general lessons about first-mover advantages from data from the 1700s.

The first-mover advantage depends in part on how rapidly it is possible to draw ahead of your competitors – which in turn depends on factors like the general rate of progress, and whether you have the technology to lock in customers.

Those factors are increasing over time. First-mover advantages were less significant way back when.

By: Doug S.

Doug S. — Sat, 26 Sep 2009 01:08:52 +0000

Technically, Rockefeller consolidated oil refining.

Also, part of the 1920s stock bubble was driven by tech stocks, specifically companies involved in radio technology.

By: Jayson Virissimo

Jayson Virissimo — Sat, 26 Sep 2009 00:28:30 +0000

“JD Rockefeller consolidated oil (ruthlessly)” -jonathan

How is buying things by offering somebody more than they are being offered by other people ruthless?

By: jonathan

jonathan — Fri, 25 Sep 2009 21:20:40 +0000

During the internet bubble, there was lots of junk talk about 1st mover advantage. To me, times change but the irrationality of the belief remains. Pioneers in America had no 1st mover advantage – had a disadvantage because if they made a mark, it’s a name on a map. The Gold Rush made a few late comers rich. JD Rockefeller consolidated oil (ruthlessly). Microsoft didn’t invent anything. If there’s an inherent advantage, it’s to the consolidators who come in with fresh money and fresh approaches to an area, an industry, an endeavor which has been gashed at up to the point where consolidation can reap rewards.

By: Barkley Rosser

Barkley Rosser — Fri, 25 Sep 2009 18:19:02 +0000

admin,

Makes a great line, but not necessarily, and certainly not in the established literature of most institutionaist economists, although the Clarence Ayres tradition tended to push your line. I would agree that sometimes technoligical change is deeply linked to instituitonal change (there are many examples), but they are not one and the same thing.

By: admin

admin — Fri, 25 Sep 2009 17:23:51 +0000

Institutions are technology.

By: Barkley Rosser

Barkley Rosser — Fri, 25 Sep 2009 16:53:31 +0000

Sorry, but insitutional innovations, which are what are described here, are not the same thing as technological innovations. The main story here is simply bilge.

However, there was a fascination with tech change at the time of these connected bubbles. A sign of this is the famous fraud that happened in UK near the peak of the South Sea bubble, when one entrepreneur offered a stock for “a project whose purpose will soon be revealed,” and made quite a bit of money. OTOH, maybe people thought he was up to another institutional innovation.

By: Curt Adams

Curt Adams — Fri, 25 Sep 2009 15:27:01 +0000

“Indiscriminate irrational exuberance” seems a strawman. Has there ever been an example of “indiscriminate” irrational exuberance? Every bubble I can think of has had fairly specific targets.