Ai, Britain’s 1846 Railway Mania and Tulips

A good parallel is the Dutch tulip mania during the 1630s, when the object of speculation similarly lacked any fundamental underpinning.


The first law of financial bubbles is this: it is easy to know when you are in one, but difficult to know when it will pop. 

The AI bubble is different. Sooner or later, today’s high valuations will require support from the underlying fundamentals. 

That means generating positive cash flows from the massive investments being made in computing infrastructure (data centers and the like). Unlike crypto (and unlike Dutch tulip bulbs 400 years ago), those betting on AI need an economically sustainable business model.

Given that the fixed costs required to offer AI services dominate the marginal cost of each unit of service, the economics are daunting. As and when price tends toward marginal cost, all players will lose money. 

That is why previous technological revolutions have often matured into either a stable oligopoly (which is difficult to maintain) or a regulated monopoly. 

The histories of the railroads, electrification, and the internet are all relevant here. Each required massive investments in physical infrastructure before anyone had discovered viable, scalable applications for the new technology. 

William H. Janeway is a distinguished affiliated professor in economics at the University of Cambridge and author of Doing Capitalism in the Innovation Economy (Cambridge University Press, 2018).

William H. Janeway Project Syindicate Aug 29, 2025

https://www.project-syndicate.org/onpoint/ai-crypto-bubbles-american-innovation-ecosystem-breaking-down-by-william-h-janeway-2025-08


Britain’s 1846 Railway Mania

https://englundmacro.blogspot.com/2020/09/britains-1846-railway-mania.html


Tulips

https://englundmacro.blogspot.com/2022/05/asset-bubbles.html


https://englundmacro.blogspot.com/2025/11/godmorgon-18-november-2025.html

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