Bubbles and Crashes: The Boom and Bust of Technological Innovation by Brent Goldfarb & David A. Kirsch

Author:Brent Goldfarb & David A. Kirsch [Goldfarb, Brent & Kirsch, David A.]
Language: eng
Format: epub
Tags: Business & Economics, Economic Conditions, Economic History, Economics, General, Technology & Engineering, Social Aspects
ISBN: 9780804793834
Google: 52UMtAEACAAJ
Publisher: Stanford University Press
Published: 2019-02-14T16:00:00+00:00

Transistor: A Broad Bubble with a New Set of Novices

With a total factor score of 7 out of 8 in our model, the transistor is a prime candidate for a bubble. Its first mention in the bowels of the New York Times in December 1947 suggested that the new technology might be used to make “hearing aids for the deaf.”⁵⁰ Transistors have two capabilities: they can amplify signals, and they can turn them on and off. It is this second capability that sits at the heart of computers, whereas the first is the foundation of the early hearing aids. That is, the transistor—the ur-general-purpose technology that powered the digital age—was first recognized primarily as an analog device.

The market for products that used transistors had characteristics of uncertainty that amplified narratives. There was considerable competitive uncertainty. With the exception of IBM, incumbent vacuum-tube firms were not able to make the transition to electronics; accordingly, new entrants dominated the industry. The early market was driven by defense applications, and by the mid-1950s electronic hearing aids appeared on the consumer market. But hearing aids have limited resonance with the public. Nevertheless, the transistor had a consumer-facing killer app: the transistor radio. Though expensive at $50, hundreds of thousands of radios were sold through 1957. Importantly, the transistor created an entry opportunity for new firms that might have been struggling to compete in the manufacture of vacuum-tube-based technologies. New applications such as the photocopier also appeared. Defense applications and the digital functions of the transistor sparked the beginning of Moore’s law: exponential miniaturization of digital functionality. This variety of applications and new firms founded to explore them led to a host of narratives, embedded in an overarching story about the new electronic age.

By the early 1960s, with the advent of the integrated circuit, the market was in the throes of the “’tronics” boom:⁵¹ “Dozens of companies now have ‘electronics’ in one form or another woven into their corporate names. To mention just a few: Electro-Sonic Laboratories, Electronic Assistance Corp., Electro Nuclear Systems, Electronics Inc., Electronized Chemical Corp., Electrosolids Corp., Electronic Nuclear Co., Electronic Missiles Co., and Electronisonic Laboratories. . . . There are so many of them that customers are always getting confused in placing their orders.”⁵²

No longer was investment logic centered on dividends, a direct measure of profitability. Instead, the focus was on “value,” which meant capital appreciation. The greater-fool theory now had a narrative: buy today and someone will pay more for it tomorrow, especially if some version of the word electronics is in the company name.⁵³ Important businesses emerged during this period, including household names, such as Texas Instruments, Xerox, and Polaroid, but many over-the-counter issues, such as the names above (our favorite is Electronisonic) are long forgotten. Our index, which unfortunately misses the small, over-the-counter firms that we expect to be most frothy, has peak frothiness in late 1961 of 2.75.⁵⁴ In part reflecting the fact that the bigger players comprise the index, the measured decline is not extreme (only 30%), although this was more than the decline in the general market (21%).

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.