The New Book That Scares Big Tech

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1:23Derek Thompson: The industrialist Jay Cook might be the most interesting Americans that very few Americans have heard of. In the 1860s, he was a hero. He raised money for the union by selling government bonds to the public. After the war, whose victory he financed, he used the same playbook to sell bonds to build railroads. For this, he is often considered America's first venture capitalist. For a while, Cook was the richest man in America. But in 1873, months after a stock market collapse in Vienna, Cook's empire went under, triggering the panic of 1873 and one of the worst depressions in American history. Hundreds of railroad companies went belly up, and so did the economies of the United States and much of Europe.

2:11Derek Thompson: Some of this might sound familiar. In the last two years, the richest tech companies have blown through their free cash flow to build out AI. Now they're tapping the bond market, raising debt like the railroad giants of old to build a machine that they, like the barons of old, believe will change the world. Today's guest, the author Liakit Ahmed, makes the illusion explicit between the 1870s and today in his new book entitled 1873. In fact, the connection between the railroads and AI is so close that Microsoft chief executive Satya Nadella called 1873, quote, the book to be read, end quote, on the company's recent earnings call.

2:55Derek Thompson: If the tech moguls building and financing AI believed that we might be back in 1873, I thought, well, we'd better understand exactly what happened in 1872 and 1873 and the years that followed. Today, we talk to Lee Ockett about the bond boom of the 19th century, the mysterious Rothschild family at its heart, Jay Cook, the mania that leads to bubbles, and the quiet power of monetary policy to fix the inevitable crises of all economic exuberance. I'm Derek Thompson. This is Plain English.

3:55Derek Thompson: Liakit Ahmed, welcome to the show. Well, thank you, Derek. Microsoft CEO Satya Nadella called your book, 1873, quote, the book to be read, end quote, on the company's recent earnings call. Tell me about your reaction to the CEO of Microsoft recommending your book to anybody in Silicon Valley who is building artificial intelligence. What did you make of this call out? Well, look, having the CEO of a$3.5 trillion company sort of recommend your book is obviously a great boon. I have to say, I have a feeling that he misread the lessons. And maybe we should come to that later. No, let's go into it right now.

4:45Derek Thompson: At a high level, tell me what the lesson was that he misread. You know, I think he drew the conclusion that he was asked, what's the risk of overbuilding? And he drew the conclusion is, you're just going to be very careful. And if you approach this very carefully, we won't have any overbuilding. I think he failed to realize that there's a collective action problem, that essentially each individual hyperscaler is trying to be careful, but the collective, the sum of their actions may not be rational and will lead to overbuilding. And a part of it is the competitive pressures. And so just one level deeper here before we get into the storytelling of your book, 1873.

5:42Derek Thompson: Very briefly, what is your lesson to the hyperscalers and the neoclouds and the labs who all have their own agency and their own motivations, but are nonetheless collectively engaged in this project of building out the most expensive private sector industrial project in history? What is your lesson to these folks on the off chance that they're listening? You know, I'm not sure I have a lesson for them because there's a certain inevitability. If you succumb to the competitive pressures to be first and everyone's trying to be first and not everyone can be first, I think it's inevitable that there will be overbuilding.

6:30and I'm not sure what you can do about it once you have the premise that everyone's trying to be first. You could elect to not play the game and I don't know whether I'm not enough of a business strategist to figure out whether that's a feasible option.

6:52Derek Thompson: I want to go through this book because not only do I think it is rife with historical analogies for the present, but it's also just a rip-roaring tale. I want to begin in 1869 and early 1870, which is a period celebrated for three technological breakthroughs in the realm of transportation. What are these three technological breakthroughs, and why do they matter? So, I focus on those three as iconic moments. Essentially, 1850 to 1870, we had a 20-year boom in the West. We saw investment rise by 5 % of GDP collectively. And that may not sound like a lot, but it is gigantic. It was also accompanied by a 5 % rise in savings rates.

7:51And in fact, an investment boom without a rise in savings rates would have caused interest rates to go up. In fact, we had the exact opposite. There was so much new savings that interest rates actually fell from 5 % down to about 2.5 % to 3%. And that really sustained the investment boom. And the three iconic projects were, one, the US Transcontinental Railroad, which was completed in late 69. The Suez Canal, which was also completed at late 69, just a few months later. And then the somewhat less significant was the cross India rail link. And the reason that I focus on those three is that they led to a sort of surge of interest or a surge of optimism.

8:59So newspapers wrote, newspapers started writing articles about how you could now go across the world, go around the world in less than 80 days. and you know that obviously strikes a chord because a young French adventure novelist happened to read the article in the French newspaper and a light bulb went on in his head and he said wow this has the makings of a great novel and so embarked on a novel around the world in 80 Days. He didn't realize then that it would make an even better movie.

9:44Derek Thompson: This is Jules Verne, by the way. Yeah, sorry. The movie was, yeah, no, it's fine. I remember reading it when I was 12 or 13 back in my heyday of classic old sci-fi reading. So you have these three achievements. You've got in May of 1869, the transcontinental Golden Spike being driven in Utah. In November of that year, the Suez Canal has its opening. And then just a few months after that, you've got the joining of these two large Indian railways. These technologies, as you said, they did change civilization. They changed the speed at which individuals moved around space. They changed the speed with which goods and information moved.

10:27Derek Thompson: They also changed the way large projects were financed. And I want to talk a little bit about that financial revolution that happened in the 1860s, early 1870s. Let's talk about the birth of the modern bond market. You write that between 1850 and 1873, the global bond market quintupled in size. How did this happen? Well, as I was saying, as I was describing, the increase in savings was there's a whole new middle class that came to maturity in Europe. which was the dominant financial power. And this middle class was looking for places to put their money. And they'd been badly burnt during the 1840s because of a bubble in the British railroads and also because of revolution across Europe, which had caused the largest fall in stock markets.

11:36across Europe. And so they were looking for a much safer investment than equities. And they stumbled across this bond market. The bond market had been created by the Rothschilds in the early 19th century, essentially to finance governments. But now, as the financing needs of governments declined, a new borrower came on the seat, and that was the railroads. And as a consequence, you got a surge of issuance by railroads around the world. And at the center of this was this family, the Rothschilds.

12:24Derek Thompson: So you're saying you can't really understand the bond market without understanding the Rothschilds. Who were the Rothschilds, and how did this family get so rich? So the founder of the family, or the founding father of the family, was a Jewish banker in Frankfurt. And he was the banker to the Landgrave of Hess. And he ended up accumulating vast amounts of sterling, pound sterling. because Hess had been the supplier of soldiers to the British Army during the American War of Independence. So in the early 19th century, he sends his third son, Nathan Rothschild, to London to invest this money. And he thinks Nathan is going to go into the textile business.

13:24Instead, Nathan becomes a smuggler and helps the British evade the French blockade around Britain during the Napoleonic Wars, and in the process accumulates an enormous pile of cash. So that's essentially the origin. The Rothschilds were originally just great smugglers. after the Napoleonic Wars, because of their smuggling operation, they have a network of contacts across Europe. And there are five brothers. Nathan is based in London. There's one brother who's based in Frankfurt, another one based in Vienna, another one who goes to Naples and the fifth, the youngest one, James, goes to Paris. And this network of five brothers essentially becomes the prime lenders to governments across Europe as they're trying to rebuild after the Napoleonic Wars.

14:41So that's essentially how they build up their banking empire.

14:47Derek Thompson: I want you to connect the story from the middle of the 19th century to the era that you describe in your book, the 1870s. Because as I understand it, the Rothschilds were nearly destroyed by the revolutions of the mid-1840s, the revolutions of 1848. Why don't you take us from the revolutions of 1848 right up to the early 1870s? Okay. So Nathan, who was essentially the architect of the fortune, dies in 1837. So he's no longer in the picture. In 1848, when there's revolution across Europe, people actually think that the French government is going to fall, the Austrian government is going to fall, a lot of the German governments are going to fall.

15:39Government bonds decline dramatically in price. And the Rothschilds, as the premier dealers in government bonds, lose half their capital. At one point, it looked as if they might actually go bankrupt. They were bailed out because the revolution in France was squashed. And they were bailed out by the French government. government, they're now in a position where they're still the dominant player in the bond market, but governments have stopped borrowing. At that point, there's an explosion of demand as railroads start getting constructed, both both across Europe, in the US, and actually around the world.

16:38And the investment in railroads goes from roughly a billion a year to almost$3 billion a year around the world. And that becomes the foundation for the Rothschild banking empire in the third quarter of the 19th century.

17:01Derek Thompson: I want to add America to the picture in just a second, but as much as I'm sure you love all of your Rothschild equally, I wonder which Rothschild is your favorite and why? Because this is such a cast of famous characters, infamous characters, mystical characters, I think for a lot of people who know the name Rothschild but don't know anything beyond the connotations of rich and also Jewish and maybe conspiracy theory. Who is your favorite of the Rothschilds children? as it were. Well, yeah, no question. It's James de Rothschild. By the way, they were

17:40ennobled in the 1820s by the Austrian king. So they now could be de Rothschild or von Rothschild. and the youngest son, James, had settled in Paris. And he was essentially the, he did not have the sort of hardscrabble youth of his older brothers. So there was something spoiled about him. And he became essentially like a prince. And he established himself in Paris And he got on very well with the royal family, which were restored after the Napoleonic Wars. And he became a larger-than-life character on the Parisian scene. He would have these grand parties. He was a great sponsor of the arts. He became a friend of the—and he actually had an enormous capacity for friendship.

18:57So he had a friendship with a radical poet, Heine. He also had a great friendship with Balzac. So he was the most prominent—he was actually almost as prominent as initially the king, And then after 1850, when Napoleon Troyes took over, he was as prominent as Napoleon Troyes. And so when he died in 1867, 40 ,000 Parisians came out to pay respects. And it was like a royal funeral. The streets were lined with workers silently taking off their cats in respect.

19:59Derek Thompson: So, to capture where we are in the story, we have, leading into the 1860s, early 1870s, this explosion of infrastructure projects. Railroads being built all over Europe, all over the world. And financing this infrastructure project is this similar explosion in the bond market. The most famous player in which is this Rothschild family. That's what's happening in one part of the world, which is Europe. But the Rothschilds never seemed to really understand America from the reporting in your book. James Rothschild, for example, said this of America, quote, America is a country that defies all calculation, end quote.

20:38Derek Thompson: Anthony Rothschild called America the world's, quote, most blasted and most stinking country, which is much ruder than James. But America had its own answers to the Rothschilds in the realm of rising bond markets. And I think this requires us to introduce another main character, who is Jay Cook. Tell me first where Jay Cook came from, starting with the American Civil War. Okay. So he was a total unknown when the Civil War broke out. But he had this great idea that the union government was totally dependent on banks in order to raise its finances. And he had this brilliant idea, we can convert this bond market that they've developed in Europe and sell bonds in smaller denominations to individual Americans and use that to finance the union government.

21:50Now, it was essentially democratizing this bond market, which had been developed in Europe for high net worth individuals. He started selling bonds in denominations of$1 ,000,$2 ,000, and had an army of salesmen. He It was sort of like the Merrill Lynch. I don't know whether that illusion still holds today.

22:20Derek Thompson: You're saying it's a perfectly American story, right? You take this bond market tradition in America that's aristocratic, that's all about taking money from rich people and using it to either finance governments or finance large projects. And he's saying, can I go out and ask like ordinary Americans for like, you know, a few bucks and tell them, hey, like the U.S. government's going to pay back a few bucks plus interest. And you'll be supporting the Union against the Confederacy. And so he takes this idea that is previously aristocratic and democratizes it. It's sort of a perfectly American counterpoint to the Rothschilds.

22:54Yeah. So it was a brilliant idea. Raises a billion dollars of the financing that the Union government needed. Ends up after the Civil War as one of the three or four richest men in the country. and builds a giant estate outside Philadelphia, is worth$10,$20 million. So he's a very well-established figure. After the Civil War, he looks around and tries to figure out, what should I now finance? and he latches onto the railroads. He was actually offered, initially he was slightly skeptical because he was a little worried that this sounds highly risky, very, you know, how am I going to ensure that the railroads are going to be able to pay back the borrowers?

23:59But he's persuaded because there was a second transcontinental railroad being planned, and they offer him a sweetheart deal. They essentially offer him giant commissions, a stake in their business, so he can go from being one of the three or four richest men in the country to being by far the richest man in the country. And he commits to raising$100 million for the Northern Pacific, which was going to be the second transcontinental railroad.

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25:20Derek Thompson: Guessing it's for game shows, not for your business, especially when your margin for error is zero. Workday is the enterprise AI platform for HR, finance, and IT with a deep understanding of your organization's context and guardrails. So every AI action is permission aware, giving you accuracy 24-7 and the ability to not just get work done, but get it done right. It's a new Workday. Did you know Uber has a range of safety features for riders? Like the Share My Trip feature that lets you send your live location to the people who matter most, your spouse, your kids, your best friend, so they can track your ride and make sure you get where you're going.

26:02Derek Thompson: But the safety doesn't stop there. Uber requires every driver to pass a thorough background check before they can start driving. This consists of a multi-step screening process that checks for impaired driving or criminal offenses, followed by annual background checks each and every year moving forward. Share my trip and annual driver screenings are just a few of Uber's many safety features that put safety at every turn. Learn more at uber.com slash safety. Annual driving history reruns do not apply in New York City. What I like about this story so far is that the parallelism is perfect because in both Europe and in America, The modern bond market is born as a system for raising IOUs for governments, but then it evolves into becoming an IOU system for the railroads.

26:55Derek Thompson: And this leads to historic amounts of money being raised by financiers who are expert at the government bond market, both the Rothschilds and Jay Cook, entering the railroad industry. So now what we have is just historic, unprecedented amounts of capital being raised to finance a private sector enterprise, an economic enterprise, not just a government. So we've got the story of the financiers. There's another part of the story that's very important, and that's war, the Franco-Prussian War. Tell me, Liakit, why the Franco-Prussian War happens, and most importantly, why it ends with what you and your book call the greatest financial event in history.

27:40So the Franco-Prussian War occurs in 1870. Now, Europe has been in a 20-year boom. in 1870, much to everyone's surprise, France, the third most important financial power in the world, declares war on Germany, the fourth most important financial power in the world. The expectation was that this would, I mean, if you have a 20-year boom and then you get a sudden war, you would think that would cause a collapse in stock markets, in bond markets. Everyone would head for the hills. Instead, the disruptions caused by it and the changes in the financial flows provoke a sort of second, last phase of the boom, a sort of three-year mini boom.

28:44And it starts out when the Germans defeated France hands-on, hands-down, in the battlefield. And in order to ensure that France never again threatens Germany, they impose a giant financial penalty on France of a billion dollars. Now, converting sums from then to now, the best way to do it is to multiply by a thousand or twelve hundred. So a billion dollars then would be the equivalent of one one point five trillion dollars now.

29:29Derek Thompson: And which is a staggering amount of money. Yes. To force the loser of a war to pay. I mean, This is completely unprecedented in modern times. There's never been a trillion-dollar penalty after a war ends. Right. And it would essentially be 20 % of French GDP.

29:51And Bismarck thinks this will keep France in its place for a whole generation. They'll be so busy trying to pay this off that they will not be able to threaten me. They will not be able to rebuild their military.

30:13Instead, the French government turns to the Rothschilds. And the greatest financial event in history, as I call it, is the fact that in the next two years, in 1870 and 1871, the Rothschilds are able to raise the billion dollars in two bond issues, one which was three times oversubscribed, and the second, which is 15 times oversubscribed. And it suddenly hits home to everyone that there are giant pools of money waiting to be tapped. And that causes a sort of second or last phase of the boom. As everyone says, look, if there is$15 billion waiting to be tapped, I want a piece of that. And you get a series of mini booms on the U.S.

31:28railroads, in Germany, and also on the London Stock Exchange.

31:37Derek Thompson: It's such an interesting and counterintuitive piece of economic history that I did not know at all. I mean, as you set it up perfectly, you would think that a war would be bad for the economy. You would not think that a war would create a financial penalty that was solved so efficiently that it opened up an entirely new frontier in the landscape of finance. I'm reading now from your own reporting in the book. Germany, of course, receives all$1 billion from France. It's trivially easy for France to make this payment. By the way, that means a billion dollars entering Germany. So Germany is now getting a trillion dollar stimulus from France.

32:18Derek Thompson: Its economy is booming. Between 1871 and 1873, nearly 850 companies are created. That is five times more than the entire preceding century. All of these people, it's like a startup frenzy. All these people are like, oh, hey, if it's incredibly easy for the Rothschilds to raise money for the nation of France, hey, what about my idea to like, you know, have a power company to build another railroad to do, I don't know, something with nice French shirts or something. 140 new banks appear and everyone is speculating. Aristocrats, generals, servants, piano teachers, politicians. It unlocks all of the savings and it marshals that savings toward the creation of new capital.

33:01Derek Thompson: Back to the U.S. You've got money pouring into the railroads right now. What happens next? So the amount of railroad construction goes from 3 ,000, 4 ,000 miles a year, which was sort of sustainable, to 7 ,000 miles of new track every year. Railroads are getting built into places where there are no settlers, there is no demand, but everyone gets caught up in this whole thing of, God, I've got to build a railroad. And so that's the second boo, the US railroad boo. And then the third is that every country that had never been able to borrow on the capital markets, comes to London and borrows on the London Stock Exchange.

34:06And so you get countries like Egypt, like Turkey, like Peru, like Honduras, all issuing bonds on the London Stock Exchange. So you've got three simultaneous booms. The German stock market, and by implication, because Austria was so closely related to Germany, the V &E stock market, which both go up 200 to 300%. And you've got the railroads exploding in the US. And you have all these borrowers from sovereign borrowers in London.

34:48Derek Thompson: we're just about to reach the moment may 1873 that your book is at least partly named after before we do i just want to remind myself and remind some listeners of why i was drawn to talk about this book now u.s deficits in 2026 are going to reach a record high of$2 trillion. The government is issuing an enormous amount of debt, that is to say, bonds in order to pay back or pay for this deficit. The hyperscalers that are building out artificial intelligence are now borrowing at levels that are unprecedented for the private sector. The energy is taking on money, needs money to build transformers in the energy grid.

35:32Derek Thompson: For residential construction, we need to borrow money and raise equity to build houses. There is, at this moment, in 2026, this enormous demand for money, money, money. We need bonds for the U.S. government. We need bonds for equity for the hyperscalers. We need money and investment for energy and housing. Enormous demand, an enormous need to put all of this capital to work at this moment. And so I want to remind people before we go on with the rest of the narrative in your book, that there's an interesting echo here between the capital boom of the 1860s, 1870s, and the enormous need for bonds and equity and debt to do what we need to do in government and the private sector in the U.S.

36:20Derek Thompson: today. This brings us, in your story, to May 1873 and what happens. So, in May of 1873, the Viennese stock market has gone up 300%. Like Germany, a whole lot of new companies have been formed. But by the beginning of 1873, there's growing resistance to buying these new startups. And as they keep on issuing equity, they start accumulating on the books of the stockbrokers. And then in May of 1873, the rumor goes around that the richest man in Austria, Ansel von Rothschild, who runs the largest bank in Austria, has been selling stocks, thinking they're grossly overvalued. And the market cracks. And in a day, bank stocks go down by 45%.

37:38Other stocks go down by 20 % to 30%. It's sort of like the crash that we had in 1987. So that's the first thing that happens. I should actually also mention that it occurred at a time when the crown princess of Austria was getting married. All of the royal families of Europe were in Vienna celebrating. So there they were on one side of the city, dancing the waltz and having dinners. And the other side of the city, you're getting stockbrokers throwing themselves out of rooms, and you're getting the equivalent of Black Friday.

38:37Derek Thompson: That's May of 1873 in Vienna. What happens in September of 1873 in the United States? So meanwhile, in the United States, this explosion in the number of railroads has actually led to a series of problems. None of the—only out of the 400 railroads, only 100 are able to pay dividends. So essentially, none of them are making money. So they're cutting fares. They're also increasingly finding it difficult to finance themselves. So with the disruptions that went on in Europe, initially there was lots of money available. And then after the problems on the stock market in Vienna, money starts becoming tighter and tighter.

39:37And so they're having to pay up to borrow money. In September, Jay Cook discovers that he is not able to raise any more money. He'd raised about$20 million to$30 million of the$100 million he was trying to raise for the Northern Pacific. He's not able to raise any more. he starts putting his own money, his own bank's money into the railroad. A little bit like as happened in 2008 when Lehman Brothers was putting its own capital into real estate. And at one point in September, the people who lent his own creditors pulled the plug and essentially say, no more. And he is forced to close shop. Now, the psychological effect of that, the psychological effect is the equivalent today if a company like OpenAI said, we are not able to raise the remaining capital we need to complete model.

41:05It just had a devastating impact. On top of which, people said, if Jay Cook and company can't raise the capital, what chance do I have as, you know, Jay Cook, who knows everyone, is a friend of the president, is the most well-connected banker in the country. If he can't raise it, what chance do I have as a sort of startup railroad of completing, of raising the capital? So they all down tools, all construction stops, and one railroad after another defaults on its obligations. So by the end of the year, we get at least 100 railroads who've defaulted. Within the next three years, half the railroads in the country go under.

42:06Derek Thompson: So in the U.S., you have this massive wave of railroad defaults. And I believe the term that was often used at the time was railroad depression. Railroads were so integral to the growth of the economy in the 1850s and 1860s that when in the panic of 1873, as it was later known, when it happened, we said, oh, this is a railroad depression. It's a depression that starts with and is significantly caused by this implosion of railroad investment. But railroads aren't the only thing that brings down the global economy in the 1870s. There's also, and this is complicated but incredibly important, something that Germany does with the silver trade to sort of needle its forever enemy, France.

42:55Derek Thompson: Tell me a little bit about Germany's silver trade and how that might have been one of the most important reasons why we got the depression of the 1870s. Okay, so until the 1870s, the world banking system, the world's financial system, was built around two precious metals, gold and silver. A third of the countries in the world, Britain, Portugal, were based on gold. Another third, which is most of the European countries, but also China, India, and Mexico, were built around silver. Their financial system was based on silver. And there were a few countries which were based on both. And the two countries that were based on both was the US and France.

43:53And, you know, it's a surprise to most people that France was the linchpin of the global financial system at that point, that it held both gold and silver and acted as a stabilizing role. So, when there was a lot of gold coming onto the market, they would absorb the gold and let go of silver. When there was a lot of silver coming onto the market, they would absorb the silver. So, France and the Banque de France was especially important, and behind the Banque de France was the Rothschilds. Now, when Bismarck gets the billion dollars as the penalty from France, He decides, okay, I'm not going to only impose this giant penalty on France.

44:56I am going to destroy their financial position in Europe. And so what he does is he sells all of his silver and converts it into gold. And it's all aimed at weakening France. and it sets off a self-reinforcing spiral down of silver prices. So silver prices, every bank in Europe says, look, I'm going to get out of the way when these two behemoths are fighting. So they start selling silver. And the world essentially, you get a scramble for gold and silver prices collapse. And whenever you get a scramble for something like gold, it tightens credit around the world. And it makes credit not available around the world.

46:01And to do this in the middle of a financial crisis is doubly damaging. And so over the next year, in fact, it lasts for the next 20 years, the world is suffering from a shortage of liquidity caused by the demonetization, as it's called, of silver.

46:27Derek Thompson: In your book, you write that, according to one historian, this was, quote, the most drastic deflation in the memory of man. In the long history of money and prices from the Middle Ages to the present, there is nothing like it, end quote. And most shockingly, almost all of it, according to Nobel Prize-winning economist Milton Friedman, could be blamed on one single blunder, which is Germany's demonetization of silver. So here you have, I think, the building blocks of and the fact of a crisis. This bond market extends from governments to the railroads. There is a period of economic euphoria as these bonds allow for the successful construction of railroads around the world.

47:14Derek Thompson: There's a synchronous decline in stock markets in Vienna and Europe at the same time that Jay Cooke realizes that his railroad empire is basically belly up and has to essentially, I love your analogy, make the argument that we don't have enough money to finish our models. We don't have enough money to finish the construction of our rails. And then to top it all off, you have this unbelievable blunder, which is essentially weaponized monetary policy. This blunder whereby Germany essentially guts the 1870s economy for the entire Western world by creating this deflationary spiral. I want to talk about two of the consequences that you mentioned and then pivot very quickly to what you see as the lessons of 1873.

48:00Derek Thompson: Two of the consequences that I thought were most interesting that you raised in your book were the rise of anti-Semitism in Europe and the rise of Jim Crow in America. I'm just going to quote from your work here. Quote, In the United States, the grand administration's ineffectual response to the combination of economic disarray and deflation led to the fracturing of the Republican Party, seemingly unassailable after the Civil War. In a stunning reversal, the Republicans lost the House in the midterm elections of 1874, the second largest swing in the House's history. and by enabling Democrats to reassert control in the South, this bargain led very directly to the rise of Jim Crow.

48:41Derek Thompson: So here on the one hand is an argument that the aftermath of 1873 in the U.S. spread as far as the rise of Jim Crow in the South. But also anti-Semitism in Europe, quote, in Central Europe, the hundreds of thousands of novice investors who had lost their savings in the German and Austrian stock market crashes sought scapegoats for their own greed and folly. Goaded by a group of rabble-rousing pamphleteers, they increasingly directed their anger against Jews. In the decades after 1873, a wave of anti-Semitism swept over Europe, end quote. So I love these two. I mean, I don't love either of them.

49:21Derek Thompson: They're both absolutely horrific from a moral standpoint, but they're really interesting in terms of letting us see how something as naughty and complex as German monetary policy can have its tendrils in things as far-flung as anti-Semitism in Europe and racism in America. But I want to take the last 10 minutes that we have together. Sorry for racing through those implications and consequences. I want to talk a little bit about the present. Going back to the very first question that I asked you, Liakit, how should AI moguls read your book? Okay, so there's a positive lesson and there's a negative lesson.

50:06So ultimately, the boom ended. So like all private investment booms, investment goes shooting up and then it comes down. And it was surprising what a modest effect it had on GDP growth. I mean, it put the economy into a recession for a couple of years, but it wasn't a disaster. So, one lesson is that the economy is surprisingly resilient and is able to accommodate changes in investment savings reasonably well. And it's only when you superimpose upon that sort of massive failures of monetary policy that you get a true depression. So that's the hope, that this boom will peter out at some point, but that it'll be a soft landing.

51:22And I suppose we can point to a few lessons in recent history.

51:34In 1999, 2000, when the internet bubble burst, we got a modest recession. And the stock market fall was dramatic. But the wider impact was actually relatively muted because we were able to ease monetary policy. There were a whole series of adjustments that took place. So that's the positive lesson. I suppose the negative is that geopolitics doesn't take a vacation during financial crises. In fact, it probably exacerbates international tensions. And that what made the 1873 thing much worse, the 1873 depression much worse, was the geopolitics of Germany versus France. Now, you may think, well, what relevance does that have for today?

52:54I'll give you a modern day analogy. In 2008, Hank Poulsen, who was the Secretary of the Treasury, was at the Beijing Olympics, and he heard a rumor that Russia had approached China and proposed that they jointly sell all their U.S. agency bonds in order to hit the U.S. while it's down. And luckily, China, recognizing that it had too much of a stake in the viability of the global financial system, turned them down. But just the fact that this was raised should pose sort of a sense that these things can get out of control, and who knows where they can go. So that's the sort of negative lesson that I would draw.

54:06Derek Thompson: Two of your books, one, Lords of Finance, The Bankers That Broke the World, and two, 1873, there's clear resonance between them. I mean, in a way, am I wrong that both books are fundamentally about just how bad, bad monetary policy can be, right? Like the bankers that broke the world were adhering to the gold standard in the face of total catastrophe and against all evidence. I mean, we have learned just a dozen, a thousand economic papers have testified to the failures of monetary policy that turned what certainly should have been a bad recession in the late 1920s, early 1930s into a global Great Depression that completely reshaped the world, reshaped American politics, reshaped Russian politics.

54:57Derek Thompson: German politics certainly maybe helped to cause World War II. Absolutely catastrophic. and then in 1873 you have German monetary policy which was somewhere between monetary policy and an economic weapon designed to destroy the monetary policy of another country is there a way in which a great deal of your work as a writer as an economic historian is the attempt to open our eyes to how dangerous bad monetary policy is and by consequence, how important good monetary policy is. I mean, there has been a revolution, certainly, in terms of moving beyond the gold standard in the last 50 years. And if you look at the last 50 years, we've had recessions, the early 1870s, excuse me, early 1980s, 2007, 2008.

55:51Derek Thompson: We haven't had a deflationary crisis. We haven't had a decade of the kind of deflation or inflation that we often saw in the 19th century. So is there a way in which your grand thesis as an author is bad monetary policy can break the world and good monetary policy can save it? Yeah, I would add a sort of a little provision to that, which is bad monetary policy can occur because people are stupid. Bad monetary policy can also occur because there are so many constraints to good monetary policy. You know, so let's take an example that you cited. The 1870s, Grant, he stayed, he kept monetary policy tight.

56:45As a consequence, destroyed the Republican Party's hold on power for a generation. The reason he did that was the U.S. had come off the Civil War. It had gone off gold. He thought that the US would never be taken seriously as a country if its currency didn't go back onto gold. So he had a long-run goal to go back onto gold, which involved staying tight. On the other hand, in the depression that came in 1873, the pressure was to ease monetary policy. So he had a short-term problem which called for easing monetary policy and a long-run goal for restoring the US back onto gold. And it's that tension between the short-run goal and the long-run goal that led him to do the wrong thing, if you like.

57:51So, if we face a situation going forward, we have multiple goals and we have multiple constraints at the moment. We have a budget deficit that is way too high. We have a stock market that is 250 % of GDP. juggling all these various things, I think, is going to be a real challenge for whoever is running monetary policy for the U.S.

58:28Derek Thompson: Well, for now, it appears to be Kevin Warsh. I hope he's not a puppet with Trump holding the strings. But good luck, Kevin. Thank you, the Ocket. This is really interesting. Thank you for the history lesson and for the present lesson as well. Okay. Thank you, Derek.

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