Hot stocks, high living and the nother of all crashes. Essay: Liaquat Ashamed makes a convincing argument that the boom before the 1873 global crisis has unsettling parallels with today's AI Frenzy. parallels with today’s AI frenzy. By Patrick Foulis ### **Main Article:** For most people working in markets, business or government, the canonical examples of a global financial crisis are 1929 and 2007-09. Liaquat Ahamed’s new book brings to life a third global cataclysm that was not like either of its successors and raises intriguing parallels with today’s technology and geopolitically charged world. The cast of 1873 includes Mark Twain, Karl Marx, Egyptian accountants and Prussian officers turned speculators. The boom and the bust they lived through helped create the modern world.

Hot stocks, high living and the nother of all crashes.  

Essay: Liaquat Ashamed makes a convincing argument that the boom before the 1873 global crisis has unsettling parallels with today's AI Frenzy.  

parallels with today’s AI frenzy. By Patrick Foulis

### **Main Article:**

For most people working in markets, business or government, the canonical examples of a global financial crisis are 1929 and 2007-09. Liaquat Ahamed’s new book brings to life a third global cataclysm that was not like either of its successors and raises intriguing parallels with today’s technology and geopolitically charged world. The cast of 1873 includes Mark Twain, Karl Marx, Egyptian accountants and Prussian officers turned speculators. The boom and the bust they lived through helped create the modern world.

The crash was brutal. In one day in May, shares in Vienna collapsed by 45 per cent. In September, America’s leading investment bank, Jay Cooke & Company, collapsed, leading the New York Stock Exchange to suspend trading. There was a bond market panic and the contagion fuelled a global credit crunch. By 1876, cross-border lending via London had dropped 80 per cent. “Around the world, people were driven by a widespread sense of resentment at the injustice of things, and politics took a darker turn,” writes Ahamed.

The deeper drama is the euphoric build-up and the toxic aftermath. In the 1850s and 1860s, a long boom had three causes. First, the absence of a global war, although there were many smaller ones. Second, an investment surge in infrastructure: railways mainly, but also canals and subsea cables.

The third was a modernised financial system. Governments issued debt more systematically, often masterminded by the Rothschild banking dynasty. Because the financial system was anchored to bullion, new discoveries of gold expanded its funding capacity. And a burgeoning middle class in the US and Europe began to invest in stocks and bonds.

All of this resulted in an explosion of financial activity: over 25 years, the total market value of financial assets in London, Paris and New York tripled to $60bn. Much of this found its way to the real economy. During this period, annual capital investment in western economies rose from 10 per cent of GDP to above 15 per cent, an unprecedented level at that point. Transformative projects were financed with securities. America’s coasts were connected when the Central Pacific and Union Pacific railroads were linked in 1869. The Suez Canal was opened six months later. In 1870, Bombay — as it then was — was linked to Calcutta by rail.

These enduring achievements came alongside froth. Vienna’s real estate scene exploded. Berlin hosted 450 initial public offerings in three years. Countries with higher risk profiles could tap the markets. In 1867, the sultan of the Ottoman Empire and the khedive of Egypt did what might amount to the world’s first high-yield debt road-show, jointly travelling to London and Paris in part to drum up appetite for their bonds.

In the book, America is dynamic but so is Europe. The reader is taken on a journey back to a continent that seethed with energy as builders, visionaries, con-artists and speculators competed in a vibrant race for prestige, wealth and plunder.

A central part of Ahamed’s argument is that the crash triggered a deflationary struggle as a result of a twist in the 19th century monetary system, which went through “a precipitous and totally unnecessary reordering”. Britain, Portugal, Turkey and Brazil had tied their currencies to gold. The Germans, Austrians, Indians and Chinese were tied to silver. France and the US linked to both metals. The crash took place alongside a pivot by unsettled governments away from silver, mostly towards a more gold-centric system.

That led to a slump in silver. It also meant the world’s financial system had, in effect, a smaller monetary base, contracting the supply of credit and precipitating deflation. Consumer and commodity prices fell. But the value of debts remained the same. That meant wealth was transferred from borrowers to lenders, reordering the social hierarchy, as debt-strapped prairie ranchers and business owners struggled to repay their borrowings from lower nominal earnings. The virtues of a “hard” system....

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...monetary argument into the lives of the rich and wannabe rich. With pace and verve, it zooms in and out of their ambitions and excesses. In the 1860s, the Rothschild Paris operation might host 60 for dinner, with salmon poached in champagne and an appearance by Liszt. This world was globalising but less than seamless. Although, after 1866, reliable transatlantic cables made the transmission of information faster, pools of investors were often local, financial companies were more federalised and asset prices less tightly correlated.

Ahamed is superb at showing how people who thought they were acting independently in different continents were actually propelled by bigger historical forces. Deflation led to a commodity rout, crippling Britain’s land-owning aristocrats, over 100 of whom married American heiresses between 1870 and 1914.

What lessons are there from 1873 for 2026? First, Ahamed shows how finance, sovereignty and coercion were blurred in ways that seem brutal to modern eyes. After the 1870-71 war, France’s repayment schedule of its indemnity to a victorious Germany determined when German troops left France. In a more predatory geopolitical system, being a heavily indebted and complacent country was deadly.

Near-bankrupt Egypt was forced to sell its 44 per cent share of the Suez Canal, ceding influence. Hard-up...

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Ottoman Turkey resorted to granting tax-collection powers to a European-owned bank. When the crash came, Jewish people were, grotesquely, blamed, in what Ahamed argues was an augury of “even more venomous” antisemitism ahead.

The second lesson relates to the nature of crashes. On Wall Street today, the AI boom is sometimes compared to the 19th-century railway bonanza, in which an essential infrastructure was built out by adventurers, geniuses and speculators. What tipped the rail frenzy into a crash was disappointing operating performance from one of the key companies, Northern Pacific Railway, which faced construction delays. The deferment of revenues led an overexposed bank to collapse.

The modern-day analogy would be a delay in the schedule of model-improvements and data centre build-outs by Anthropic and OpenAI. The AI frenzy involves more equity and less debt than the railway boom, so in theory it is more resilient. On the other hand, one of its key assets – semiconductors – lasts for less time than sleepers and land. Among the jaw-dropping statistics Ahamed marshals is that more half of American railway bonds were not paying interest by 1879.

The final lesson is about the aftermath. For students of crises, which

### Deflation crippled Britain’s landowning aristocrats, 100 of whom married American heiresses. 

should include anyone involved in the world of money, the story presents a fresh take. Many economists believe the 1929 crash — the subject of Ahamed’s previous book, *Lords of Finance*, winner of the 2009 FT Business Book of the Year Award — was made worse by the absence of a hegemon to intervene and stabilise markets. Charles Kindleberger famously concluded that “the British couldn’t and the United States wouldn’t”.

Ben Bernanke’s academic work judged that the lack of support for banks was fatal. After the 2007-09 crisis erupted, the response was a counter-reaction to 1929. As chair of the Federal Reserve, Bernanke, with the US government, committed to unequivocal American leadership, stimulus and bank bailouts.

The 1873 crash doesn’t fit this script. For a start, the financial system was more multi-polar. While London was pre-eminent in capital raising, New York was rising and France held about a third of global reserves — gold and silver — and played a key role balancing between the world’s gold and silver blocs.

Despite the absence of stimulus, the world’s four largest economies grew at an annual rate of 2.5 per cent in the 20 years after the crash — the same as in the preceding long boom and faster than the rich world did after Bernanke’s medicine in this century.

The nearest modern-day equivalent to the late 19th century’s political fights over gold and silver might be a populist countermovement against independent central banks.

Today’s world has its own infrastructure frenzy and no longer has guaranteed American leadership, while rich countries have already overdosed on stimulus. As a result, the 19th-century calamity may be the best available parallel there is. Ahamed thrillingly brings back to life a boom not unlike today’s and a crisis that doesn’t resemble 1929 or 2007-09. In the process, he illuminates new ways of thinking about finance.

## **Book Details Sidebar:**

**1873: The First Great Depression and the Making of the Modern World**

by Liaquat Ahamed

Hutchinson Heinemann £25/

Penguin Press $32

368 pages

***Patrick Foulis is an FT contributing editor***