(FORTUNE Magazine) – The word "mania" carries with it an implicit dose of disapproval. So in coming to grips with the excesses of our late, great Internet stock mania, we're inclined to be hard on ourselves. After all, more dot-coms keep collapsing, while the hissing sound emanating from optical-networking stocks this past month reminds us that no bubble can last. We admit it now. We lost our heads. What can we say?

But before we conclude that no good can come from this episode, let's be clear on one thing: America's competitive advantage is--and always has been--its knack for going nuts.

This propensity dates back to at least 1835, when the French economist Michel Chevalier marveled from Pennsylvania, "Everyone speculates and everything has become an object of speculation.... From Maine to the Red River, the U.S. has become one huge Rue Quincampoix"--scene of a famous financial fever in 18th-century France. "Most of these speculations are imprudent, several are crazy. The boom today may and must be followed by a crisis tomorrow...[but] the American does not worry about that."

And with good reason, Chevalier argued. "In the midst of all this speculation," he explained, "while some enrich and some ruin themselves, banks spring up and diffuse credit; railroads and canals extend themselves over the country; steamboats are launched into the rivers.... Some individuals lose, but the country is a gainer."

Hurling money recklessly at new industries, in other words, turns out to be a pretty fast way to build them up. In the 1920s radio stocks soared to lunatic heights before losing more than 90% of their value. In the early 1960s, investors embraced any company with the suffix "tron" or "onics." Telephones, autos, airlines, PCs, biotech, the Internet--they've all been through the same cycle. Roger McNamee, co-founder of the Silicon Valley venture firm Integral Capital Partners, isn't exaggerating when he says that "every major economic development in the U.S. has been financed by a market mania."

This doesn't quite square with what Econ 101 taught us about manias--that they're wasteful, messy, and irrational. Indeed they are. Besides funding too many entrants and thus creating huge redundancies of effort, they're built on the illusion that securities prices will continue rising indefinitely. "At a late stage," MIT economist Charles Kindleberger wrote in his classic Manias, Panics, and Crashes, "speculation tends to detach itself from really valuable objects and turn to delusive ones." Britain's South Sea Bubble spawned an enterprise that solicited money "for carrying on an undertaking of great advantage, but nobody to know what it is." The Internet bubble had Pets.com.

But here's what the tongue-clucking accounts invariably miss: However delusive speculators might be, however grasping and short term their motives, much of their money does get into the hands of real innovators who put it to productive use. When the mania that Chevalier witnessed turned to panic in 1837, "it clearly left behind the improvements, notably the canals, which had been the source of the speculative enthusiasm," observed John Kenneth Galbraith in his otherwise scolding book A Short History of Financial Euphoria. Paper profits may evaporate, but railroads and Internet routers don't.

Those advances serve, in turn, as platforms for further economic growth. Even the seemingly wasteful duplication of effort can play a socially useful role: the massive overfunding of the disk-drive industry in the early 1980s, for instance, unleashed a Darwinian process that resulted in a few world-beating competitors.

Contrast this with Europe, where capital is meted out in a more sober and responsible manner. "What's unique in our economy is that given the choice between being efficient with capital and being efficient with time, people value time," argues McNamee. "The result is we move faster, and that's why we win."

A simplification? Well, credit the Europeans with inventing irrational exuberance in the first place. Most infamous was Holland's tulip craze of 1633-37, when the otherwise circumspect Dutch mortgaged land and traded their carriages to speculate in rare bulbs. But even this mania had its mitigating result: the birth of the Netherlands' flower markets. A century later, when shares of Britain's South Sea Co. soared from 128[pounds] to 1,000[pounds] in the space of months, Sir Isaac Newton decided to abide by his maxim "I can measure the motions of bodies, but I cannot measure human folly" and bailed out with a 7,000[pounds] profit. Then he changed his mind, plunged back in, and lost 20,000[pounds].

The Europeans, alas, may have learned their lesson too well. In 1720 the British Parliament passed the Bubble Act, outlawing other speculative schemes. Europe hasn't had a good mania since.

America, meanwhile, has been milking them for 200 years. During the speculative peak of 1824-25--one of half a dozen or so in that century--issuances of new securities were commonly oversubscribed by a factor of ten or 20 to one. Shades of Internet IPOs: The shares of one new bank were so hotly craved that a contemporary observer noted, "The rush of capitalist subscribers was like a mob. Noses were smashed, hats jammed in, and the police court was at work over the wounded for weeks after." The frenzy later shifted to railroad stocks, which eventually plummeted 85% once the extent of overbuilding became evident.

All of this suggests that American investors correctly perceive a world-changing innovation when they see one. What they fail to perceive is how insanely high they've bid up share prices. In the end, though, the system has its way of fixing this. "The speculators who came in last January had to sacrifice their net worth for the good of the community," says McNamee, "and I think we all owe them a debt of gratitude."

Belonging to a nation of financial maniacs has its costs. But considering the benefits, insanity may well be a bargain.

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