Productive Bubbles

“Productive Bubbles,” as identified by Bill Janeway, describe financial episodes where heightened speculation funds technological innovations. Though many such ventures falter, the aftermath often yields transformative technologies that impact industries and societies, demonstrating the paradox of wasteful investment leading to lasting advancements.


Productive Bubbles arise in financial markets when excessive speculation funds innovation, leading to both waste and valuable, transformative technologies.

Historical Context

Throughout history, financial bubbles have funded technological innovations. While many ventures fail, some succeed and shape the future.

Key Components

  • Speculative Overreach: This is the bubble component where there’s an overinvestment in a particular sector or technology.
  • Technological Innovation: Despite being funded by speculative excess, genuine and impactful technologies or innovations emerge.
  • Post-Bubble Impact: After the bubble bursts, there’s a combination of negative fallout (e.g., financial losses) and lasting, positive technological transformation.


  • Railroad Boom: In the 19th century, speculative funding led to the laying down of too many railroad tracks. Many companies went bankrupt. However, the resulting infrastructure significantly changed transportation and commerce.
  • Dot-Com Bubble: The late 1990s and early 2000s saw enormous investments in online businesses. While many dot-com companies failed, the infrastructure (broadband) and some firms (Amazon, Google) went on to reshape the world.

Function of Productive Bubbles

They act as mechanisms to fast-track investment in new sectors. While this leads to inefficiencies, it also accelerates the maturation of transformative technologies.

Risk and Reward

These bubbles epitomize the high-risk, high-reward nature of innovation funding. The net societal gain might be positive, even if many individual investments fail.

Global Perspective

  • Not all bubbles are productive. Some result in little to no lasting value.
  • Different economies and societies react to and recover from bubbles in unique ways, influenced by regulatory environments, cultural attitudes towards risk, and existing infrastructure.

Technological Externalities

Often, the technologies funded during these bubbles benefit sectors and applications beyond their original scope, leading to unforeseen innovations and applications.

Capital Allocation Dynamics

Productive bubbles challenge traditional notions of efficient capital allocation. While they may seem inefficient in the short term, their long-term contributions can be immensely valuable.


Some argue that relying on bubbles for technological advancement is wasteful and that there might be more efficient, less volatile means of funding innovation.