I think this is what happens when you lack a coherent explanation of the business cycle. If you think that speculation is the issue then things like this might be interesting. The real question is "Was the speculation funded by inflation or savings?" If it was funded by savings then failures aren't a problem. The capital is liquidated and the investors rebuild their savings and try again doing something. When debt is involved things get a lot worse in a fractional reserve system. The equity bubble of the 90s was largely fueled by inflation and the real estate bubble was as well. Both bubbles required bailouts. See the failure of Long Term Capital Management for more information on how the equity bubble of the 90s lead to instability.<p>"America's Great Depression" by Murray Rothbard provides a good introduction to the Austrian Theory of the Business Cycle with a good historical analysis. Rothbard also covers alternative explanations of the business cycle. Even if you don't buy into the theory of the business cycle the book is worth reading just to learn just how involved in the economy Hoover really was.
Relevant link:<p><a href="http://en.wikipedia.org/wiki/Railway_Mania" rel="nofollow">http://en.wikipedia.org/wiki/Railway_Mania</a><p>It popped all right. The largest players that survived were a sound investment. But then again, if you invested in Microsoft or Cisco in the tech boom, you'd be sitting pretty right now (I think; didn't check stock prices). Doesn't mean that it wasn't a bubble.
Most bubbles are good, just not for the people who buy in at the top. These tend to be "retail" buyers and so the least able to take the loss. But oh well.<p>The recent housing bubble is actually distinguished by its particularly useless allocation of capital. The tech boom gave us a number of healthy companies as well as useful infrastructure. The housing bubble gave us a stock of deteriorating future crack houses.
Does it make sense, analytically, to say that there was a healthy railway boom in the 1830s and a bubble in the 1840s? It seems to me that most bubbles grow from a legitimate investment idea; the problem is that as more and more people bid for the securities in question, investors have trouble perceiving when the price has become too high.
I've got to believe that any truly revolutionary technology could be spun into a story of a bubble that "Didn't pop."<p>The printing press comes to mind as the most obvious example. Literacy ballooned after it, which led too the entire print medium, which in turn was necessary before anyone would have thought of electronic text, and the internet.<p>I think the key is that when a new underlying technology comes around, it doesn't pop. The bubbles created from people creative usage of that technology are what pops.