The recent boom and bust in high technology stocks and the ensuing recession leads to the question—have we seen this pattern before? Financial history is replete with stock market crashes and the business cycle goes back at least to the first Industrial Revolution in the mid-eighteenth century. The record suggests that while not all stock market crashes are associated with recessions, many are. The record also suggests that most stock market crashes are not associated with the collapse of productivity booms but rather with monetary instability, political events such as wars and as predictors of future recessions. However, there have been a few earlier historical episodes which may have resonance for today.
We first document some evidence from the historical experiences of the United Kingdom and the United States for the past two centuries on stock market crashes, recessions, and possible productivity boom busts. We then consider some salient episodes of boom-busts in each country’s history which have relevance for the recent experience.