Three Centuries of the Future on Margin: How Credit Cycles Drive Technology Bubbles

Three Centuries of the Future on Margin

TLDR: Technology bubbles from the 1920s utilities mania to the dot-com crash follow identical patterns: a visible technological future, financing mechanisms that let people own that future today, and mass access that turns belief into position size. The technology is usually right; the leverage timeline is wrong.

Summary:

This is Part II of a fascinating historical analysis that connects utility holding companies of the 1920s, the RCA radio boom, and the dot-com bubble through a single unifying framework. The author's thesis is that we tend to frame historical bubbles as IQ tests because that lets us feel smarter in hindsight, but the reality is more nuanced - the believers were often right about where technology was going, just wrong about how the financing would hold up.

The framework has three components. First, a legible future - something the public can see and imagine. Railroads crossing continents, homes lit by electricity, commerce moving online. Second, a financing regime that pulls that future forward: margin accounts, holding-company pyramids, vendor credit, junk bonds. Third, mass access - those financing tools get made available early with low thresholds that turn belief into position size.

The utilities example is instructive. Samuel Insull's operating model drove electricity prices from $0.20 per kilowatt-hour in 1892 to $0.025 by 1909 - genuine scale economics at work. The technology was spreading, but the 1920s compressed a long engineering curve into a short capital-markets event. Wall Street's instrument was the public-utility holding company, which allowed pyramiding: control flowing upward through thin equity slices while leverage accumulated throughout. By 1930, roughly $27 million of capital investment at the top controlled more than $500 million of underlying assets.

The RCA story follows the same pattern. Radio adoption was real - equipment sales grew from $60M in 1922 to $843M in 1929. But RCA stock went from $5 in 1922 to $113 at peak in 1929, then back to $2.50 in 1932. Even after the crash, radio advertising revenue kept growing into the early 1930s. The trade was priced for perfection and financed for momentum. Once the financing window narrowed, the market stopped paying end-state prices for medium-term progress.

The dot-com section connects this to recent memory. NYSE margin debt tripled from $100B in 1996 to $278B at the March 2000 peak. But the more insidious mechanism was vendor financing - Lucent committed up to $8.1 billion in customer credit, essentially becoming a shadow bank to book revenue. When WinStar needed an additional $90M in early 2001 and Lucent refused, the dominos fell.

The key insight for today's AI discussion: the question isn't whether the technology is transformational - it usually is. The question is whether you're still in the phase where that matters, or whether you've crossed into the phase where the only question is whether the financing stack can hold.

Key takeaways:

• Every technology bubble combines a visible future, cheap financing mechanisms, and mass access
• The technology usually delivers on its promise; the leverage timeline doesn't
• Market psychology shifts from "Is this working?" to "Can this still be financed?" late in cycles
• Vendor financing, margin debt, and stock-as-currency create reflexive loops that amplify collapses

Tradeoffs:

• Early financing access accelerates adoption but creates systemic fragility
• Leverage amplifies returns but turns price declines into forced selling cascades

Link: Three Centuries of the Future on Margin

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