“In this world, nothing is certain except death and taxes.” This famous quote from Benjamin Franklin excludes another certainty that I have observed: economic cycles. Right now, many Americans are in a bad mood. Inflation is at generational highs, and confidence is approaching recessionary levels. And now the values of homes are beginning to fall. This is all normal.
At the recommendation of a good friend, I have been reading Boom and Bust by William Quinn and John Turner. The authors explore speculative cycles in world history. Many of us are familiar with the Dutch Tulip Mania and the South Sea Bubble. Of course, we lived through the dot-com bubble. I want to bring our focus to the powerful lessons of the British bicycle craze.
The bicycle was invented in Germany around 1817. In the beginning, it was heavy, slow, and dangerous. One early model was known as “The Bone Crusher.” However, by the 1880s, technological improvements had made it fashionable, especially among British women.
Steel manufacturing made the bike frame lighter and stronger. Chains made it possible to move at higher speeds with smaller front tires. Smaller front tires made crashing less dangerous, and pneumatic tires made the ride much smoother. In 1890 alone, there were 595 patents in England for bicycle manufacturing, and by 1896, there were 4,269—representing 15% of all new patents that year.
In 1895, 70 bicycle-related companies existed. By the end of 1896, there were 363. In the first 6 months of 1897, another 238 were founded. Many were available to investors on local stock exchanges. It seemed impossible to comprehend the limitless era of growth coming in the industry.
The bubble deflated in 1897 like a punctured tire. Of the 141 companies with stock available to the public, only 21 made it through the next decade. While some investors suffered significant losses, the world benefited. The bicycle we ride today is very similar to that designed by the British in the 1890s. The technological improvements were an integral step toward inventing the motorcycle, the automobile, and the airplane. A few of the surviving companies went on to be manufacturing leaders in those industries. And one, Raleigh, still makes world-class bicycles today.
The end of a cycle can be painful, and we are experiencing it right now. However, progress endures. Currently, the Federal Reserve is making sure we get a slowdown to bring inflation down. It has all the tools it needs, and it will succeed. It is all part of the process of innovation and creation. We should get through it better than we were before the previous cycle began.
Listen to a deep dive into the economic cycle and where it’s headed on the Power Up Wealth podcast.
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