Reader,

In the early 1700s, the British government had accumulated massive war debt triggered by nearly continuous warfare in the late 17th and early 18th centuries.

The South Sea Company proposed to assume large portions of that debt in exchange for government-backed interest payments and trading privileges.

So, in 1720 the South Sea Company was granted a monopoly on trade with Spanish South America. Although the trade itself was politically constrained and commercially uncertain, the story was irresistible. Why? Because it promised extraordinary wealth from trade.

Political insiders promoted the scheme. Credit expanded and shares soared from roughly £100 (about $30,000 today) to over £1,000 in months.

But confidence in the scheme broke once it became clear that profits were speculative and future trade assumptions were exaggerated.

The collapse wiped out fortunes, exposed corruption, and shook public trust in both markets and the government.

Even Isaac Newton lost heavily and reportedly observed that although he could calculate the motions of heavenly bodies, he could not calculate the madness of people.

Now consider artificial intelligence.

AI is not fictional and is certainly not speculative vapor. It is demonstrably transformative from large language models to drug discovery to supply chain optimization.

But there are parallels. In both cases, transformative potential met financial acceleration.

In 1720:

• Financial engineering amplified enthusiasm.
• Political endorsement reinforced legitimacy.
• Easy credit fueled participation.
• Valuations were detached from underlying cash flows.

In 2026:

• Venture capital and public markets are pouring capital into AI firms.
• Governments are framing AI as a national competitive priority.
• Startups with minimal revenue (and no profit) command extraordinary valuations.
• “AI” is appended to business models as a signaling device of future relevance.

Yep, AI is real. But the danger is that capital may outrun capability.

A bubble does not require fraud. It requires expectation inflation.

When projected growth rates assume flawless adoption, unlimited compute scalability, frictionless regulation, and universal productivity gains, we need to pause and think.

And so, maybe we can learn from the past.

The South Sea episode teaches three enduring lessons:

1. Policy alignment does not guarantee commercial reality.
2. Technological promise does not justify every valuation.
3. Human psychology remains the most volatile variable in any market.

AI may reshape industries for decades, but prepared leaders must distinguish between structural transformation and speculative excess.

Will AI matter? Yes!

But are today’s valuations grounded in measurable productivity gains or in narrative momentum?

History does not repeat precisely.

But it rhymes loudly when optimism outruns discipline.

Next issue

Arthur C. Clarks and The Sands of Mars

Cheers,

Bill