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Wednesday, March 24, 2010

Railway Mania: The Lessons from History about 'Collective Hallucinations'

There were three great British railway manias, those of the 1830s, 1840s and 1860s - people actually made money from the first, which led to the 1844 Railways Act and then later manias. Now Andrew Odlyzko has written a monograph about them, focusing on the greatest, the 1840s, and here is part of the abstract:

"The delusions that led to the financial disaster of the Railway Mania arose from experience with the railway mania of the mid-1830s. Seldom even mentioned in the literature, it was about half the size of the big Railway Mania of the 1840s (and thus still far larger than the Internet bubble). The initial financially exuberant phase of it did collapse. But it appears to have been unique among large manias in that a few years later it was seen as having collapsed prematurely, as projects started during its exuberant phase became successful. That mania demonstrates the difficulty in identifying bubbles that are truly irrational. Both railway manias provide a variety of other lessons about the interaction of technology and financial markets."
Did we not have an early 1990s telecom-ICT bubble leading to the 1996 Telecoms Act and 1998 European framework, a dot-com bubble at the turn of the century - and now...soon...eventually....? But that is another history yet to be written.

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