We can make a start in understanding the limitations in the current standard economic approach to financial crises, and what to do about them, by looking at the path Jevons took in mid-nineteenth-century England.
This economic revolution was driven by a technical one. The railroad was the disruptive technology. It reached into every aspect of industry, commerce, and daily life, a complex network emanating from the center of the largest cities to the remotest countryside. Railroads led to, in Karl Marx’s words, “the annihilation of space by time” and the “transformation of the product into a commodity.” A product was no longer defined by where it was produced, but instead by the market to which the railroad transported it. The railroad cut through the natural terrain, with embankments, tunnels, and viaducts marking a course through the landscape that changed perceptions of nature. For passengers, the “railway journey” filled nineteenth-century novels as an event of adventure and social encounters.
Railroads were also the source of repeated crises. Then as now, there was more capital chasing the dreams of the new technology than there were solid places to put it to work. And it was hard to find a deeper hole than the railroads. Many of the railroad schemes were imprudent, sometimes insane projects, the investments often disappearing without a trace. The term railway was to Victorian England what atomic or aerodynamic were to be after World War II, and network and virtual are today. When it came to investments, the romantic appeal of being a party to this technological revolution often dominated profit considerations. Baron Rothschild quipped that there are “three principal ways to lose your money: wine, women, and engineers. While the first two are more pleasant, the third is by far more certain.” Capital invested in the railway seemed to be the preferred course to the third. Those with capital to burn were encouraged by the engineers whose profits came from building the railroads, and who could walk away unconcerned about the bloated costs that later confronted those actually running the rail. A mile of line in England and Wales cost five times that in the United States. The run of investor profits during the manias of the cycle were lost in the slumps that unerringly followed.
Starting Bookstaber's new book also reminded me of a short post he did back in 2014, which is interesting to review given recent developments around the company: Uber: What could possibly go wrong.