Tech Stock Bubbles In the 17th Century

Episode Summary

Executive Summary: The episode compares modern tech-stock manias with historical bubbles, focusing on 1690s London and the 1886 Guinness IPO. Guest Jamie Catherwood argues that speculation, hype, and fraud recur whenever new technology or high-return stories capture investor imagination, and that infrastructure overload and public euphoria are recurring warning signs of bubbles.

Main Topics: Financial history as a lens on modern markets (Priority: 5/5): Jamie Catherwood explains how studying past manias helps investors avoid mistaking temporary hype for durable innovation. 1690s London 'tech bubble' and treasure-hunting companies (Priority: 5/5): The discussion centers on joint-stock ventures tied to diving bells and treasure retrieval after Sir William Phipps’ extraordinary success created a speculative wave. Mass participation and speculative mania (Priority: 4/5): The hosts and guest discuss how investment spread beyond elites into broad public participation, with capital chasing higher returns wherever they appeared. The rubber boom as a historical IPO analogue (Priority: 4/5): The early-1900s rubber boom is used as a parallel to modern unprofitable IPOs and hype-driven listings. Guinness IPO frenzy and market infrastructure strain (Priority: 5/5): The 1886 Guinness listing is described as a classic mania, with investors physically overwhelming the bank and throwing subscription forms through windows. Infrastructure overload as a bubble signal (Priority: 4/5): The hosts argue that when exchanges, banks, or trading systems cannot handle demand, it can be a telltale sign of speculative excess.

Key Arguments: What we call 'tech stocks' today are really the most extreme examples of technology-enabled leverage over labor; similar dynamics existed in earlier eras, just with different technologies. Historical manias show that investors repeatedly chase the newest high-return story, even when the underlying economics are weak or unproven. The 1690s London treasure/diving-bell craze was driven by war-related trade restrictions, limited investment alternatives, and the huge success of Phipps’ treasure haul. Public participation in speculative ventures was broad because joint-stock structures made access easier, and capital flowed to the highest apparent returns, including lotteries. Many investors ignore fraud warnings during boom times, because rising prices and promised returns drown out caution. The Guinness IPO and similar episodes show that manias can physically overwhelm infrastructure, which may also be true in modern digital markets when systems go down under load. Most follow-on ventures in historical tech-like bubbles were failures or frauds, suggesting that novelty often attracts imitators faster than durable businesses emerge.

Data Points: Phipps treasure-hunt return: 10,000% - Investors in Sir William Phipps' treasure voyage reportedly received this return, sparking later speculative mania. Promised return in a prospectus: 100% return - One diving-technology company reportedly promised this in its prospectus during the 1690s boom. Diving patents, 1672-1689: 5 patents - Jamie cited five patents related to diving technology in the period before the mania intensified. Diving patents, 1691-1693: 17 patents - Patent activity surged in just two years during the treasure/diving craze. Share of patents in those years: 20% - Diving-related patents accounted for 20% of all patents filed in 1691-1693. Treasury lottery diversion: 87% - An analysis found that 87% of money average investors had put into joint-stock tech companies later went to Treasury lotteries. Guinness IPO bank window: 3 hours - Baring’s Bank was supposed to accept subscriptions for 36 hours but closed after only three due to demand. Guinness bank planned window: 36 hours - The expected subscription period for the Guinness IPO at Baring’s Bank.

Pivotal Quotes: "the more things change, the more they stay the same" — Jamie Catherwood: He uses this to explain why studying financial history is useful for understanding modern market behavior. "the public will never listen to someone talking about fraud when returns are good" — Jamie Catherwood: Cited from a historical commentator on why caution is ignored during speculative booms. "if the existing infrastructure can't handle demand for a particular security, then it's usually a good sign that something is out of balance in the market" — Joe Weisenthal: He frames infrastructure strain as a warning sign of speculation, using crypto and past booms as examples.

Implications: Listeners should treat hype, rapid capital inflows, and overloaded market infrastructure as caution flags. The episode suggests that speculative behavior is cyclical, and that technological novelty alone does not justify valuations or investor euphoria.