The over-investment in the auto industry in the early 1900s — some 600 new car manufacturers launched in the US between 1908 and 1910 — gave us stunningly efficient and fast combustion-engine cars. The first ones were so slow that detractors used to stand by the road yelling “get a horse” at the drivers; today, we need speed limits to stop everyone driving at 150 mph.
Investment bubbles get a bad rap. Perhaps we should mock them a little less and express our gratitude to them a little more. Why? Because while they leave huge misery in their wake, they also eventually leave us with good things paid for by other people’s capital.
The bicycle bubble of 1896, for example, left us with better bicycles. It also led to a significant improvement in the quality of the roads in the US. As Sandy Nairn points out in his 2002 book Engines That Move Markets (a must read for anyone interested in how new technology drives bubbles), at the time, “surfaced roads remained a rarity.” By getting them resurfaced, the bicycle boom paved the way for the arrival of the automobile.
