Elon Musk’s SpaceX went public on June 12, raising the equivalent of roughly $80 billion in a single IPO. Although its share price has eased somewhat since then, the company’s market capitalization still stood at about $1.8 trillion in mid-July, making it one of the seven to ten most valuable companies in the world.
For comparison, the ten largest companies in the S&P 500 now account for nearly 40 percent of the index’s total market value. They are almost entirely technology and AI companies—including SpaceX.
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At first glance, this looks like a classic bubble. But the more I thought about it, the more I came to a different conclusion.
Whenever a revolutionary new industry suddenly emerges and begins expanding at breathtaking speed, it is only natural that surplus capital flows into it. The railway boom in Britain during the mid-nineteenth century may be the best historical example.
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However, collecting reliable historical statistics is a daunting task. I spent countless hours doing exactly that while writing my book In Search of Lost Modernity. This time I asked ChatGPT to gather the available evidence instead. The figures below are drawn from well-established historical research.
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1. Railway investment exploded.
Investment in British railway construction rose from about £13 million in 1845 to £30 million in 1846, and then to £44 million in 1847.
The £44 million invested in 1847 amounted to roughly 8 percent of Britain’s GDP and was about twice the country’s military budget that year. Investment did not return to its 1845 level until around 1850.
At its peak, railway construction absorbed 7 to 8 percent of GDP and nearly half of all investment in Britain.
This was a textbook example of surplus capital pouring into a transformative new technology.
Unlike the Dutch Tulip Mania of the seventeenth century, though, this investment left behind a lasting physical asset: a national railway network. Britain’s operating railways expanded from 1,951 miles in 1842 to 6,123 miles by 1850—more than tripling in less than a decade.
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2. The boom transformed heavy industry.
Railway construction fueled Britain’s iron and machinery industries. Between 1844 and 1851, roughly 18 percent of British pig iron production went directly into railway construction.
After 1852, exports became the main engine of growth, and railways accounted for less than 10 percent of iron output.
Railways alone did not create Britain’s industrial expansion. Technological innovations such as the hot-blast furnace, growing export markets, and rising demand from other industries also played essential roles.
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3. Why did the bubble form?
Three factors stand out.
First, existing railways had been highly profitable. Average railway dividends rose from about 4.4 percent in 1843 to 7.0 percent in 1847, convincing investors that railways were virtually guaranteed to make money.
Second, the mechanism of railway shares encouraged speculation; investors typically paid only about 10 percent down, with the remainder called later as construction progressed. This effectively created leverage and drew ordinary middle-class investors into the market.
Third, Parliament approved railway projects at an extraordinary pace. In 1846 alone, Parliament authorized 263 railway bills, covering about 9,500 miles of proposed routes (Roughly one-third of those lines were never built).
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4. How the bubble burst
Railway share prices peaked around August 1845.
By the end of November they had fallen 18.2 percent, and by April 1850 they were down 57.5 percent from their peak.
Yet actual construction spending continued to rise and did not peak until 1847.
This pattern is strikingly similar to today’s investment in AI data centers and the space industry. Financial markets can collapse long before physical investment slows, because projects already under contract continue moving forward.
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5. Why did it collapse?
Three factors explain the downturn.
First, construction costs proved far higher than expected. Early estimates put railway construction at around £15,600 per mile, but actual average costs between 1844 and 1851 reached roughly £30,000 to £35,000 per mile.
Second, revenue projections turned out to be overly optimistic. Average railway income declined from about £3,470 per mile in 1845 to roughly £2,080 by 1850. As more branch lines were built, traffic was spread across a larger network and profitability fell.
Third, financial conditions deteriorated sharply. Poor harvests in 1846 and 1847, together with the Irish Famine, increased food imports and drained Britain’s gold reserves. Bound by the Bank Charter Act of 1844, the Bank of England tightened credit. A severe commercial crisis followed in 1847, ending only after the government temporarily relaxed the Act’s restrictions in October.
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6. The economic consequences
Investors suffered heavy losses. By 1850 railway shares had lost more than half their value, wiping out much of the wealth of Britain’s middle-class investors.
Railway dividends fell from 7.0 percent in 1847 to 2.4 percent by 1852.
The wider economy experienced a commercial crisis, tighter credit, and numerous business and bank failures. But Britain did not fall into a prolonged depression like that of the 1930s.
Railway construction itself continued. By 1850 the rail network had expanded dramatically, permanently improving Britain’s transportation system and strengthening its long-term economic productivity.
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In short, investors lost money, but the nation ultimately benefited. That is the classic pattern of a technology bubble.
Today’s boom in SpaceX, AI infrastructure, and data-center construction has many similarities.
The main difference is that the economic benefits of railways became visible relatively quickly through a physical transportation network. In contrast, the future earnings potential of SpaceX and AI remains far more uncertain. Markets are struggling to estimate the value of technologies whose ultimate commercial impact is still impossible to measure with confidence.
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