The New Book That Scares Big Tech

0:00The 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. After 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. Some of this might sound familiar. In the last two years, the richest tech companies have blown through their free cash flow

1:00to 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, Leachet 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's chief executive, Satin Adela, called 1873, quote, the book to be read, unquote, on the company's recent earnings call. If the tech moguls building and financing AI believe 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 talked to Leachet 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

2:04monetary policy to fix the inevitable crises of all economic exuberance. I'm Derek Thompson. This is Planning. Welcome to the show. Well, thank you, Derek. Microsoft CEO Satin Adela called your book 1873, quote, the book to be read, unquote, 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?

3:05Well, 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. Maybe we should come to that later. No, let's go into it right now. At a high level, tell me what the lesson was that he misread. I think he drew the conclusion that he was asked, what's the risk of overbuilding? He drew the conclusion is, you're just going to be very careful. 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

4:07their actions may not be rational and will lead to overbuilding. And part of it is the competitive pressures. And so just one level deeper here before we get into the storytelling of your 1873, very briefly, what is your lesson to the hyperscalers and the neoclads 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.

5:08I think it's inevitable that there will be overbuilding. And 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. 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 riproaring 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 of those three as iconic moments. Essentially 1850 to 1870, we had a 20 year boom in the West.

6:15We saw investment rise by 5% of GDP collectively. And you know, that may not sound like a lot, but it is gigantic. It was also accompanied by a 5% rise in savings rates. And 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 in late 69, just a few months later.

7:19And 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. Newspapers started writing articles about how you could now go across the world, go around the world in less than 80 days. And 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.

8:22He didn't realize then that it would make an even better movie. This is Jules Verne, by the way. Yeah, I'm sorry. The movie was, yeah, no, it's fine. No, I remember reading it when I was like 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. 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.

9:25You write the between 1850 and 1873, the global bond market, quintupled in size. How did this happen? Well, 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 burned during the 1840s because of a bubble in the British rail roads. And also because of revolution across Europe, which had caused the largest fall in stock markets across Europe. And so they were looking for a much safer investment than equities. And they stumbled across this bond market.

10:28The bond market had been created by the Rothschilds in the early 19th century, essentially to finance governments. But now as the financial needs of governments declined, a new borrower came on the seed. And that was the railroads. And as a consequence, you got a surgeon of issuance by railroads around the world. And at the center of this was this family, the Rothschilds. 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 long graph of Hess.

11:30And 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. And 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.

12:35After 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 based in 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. So that's essentially how they build up their banking empire. I want you to connect the story from the middle of the 19th century to the era that you

13:35describe 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 is 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, and 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, government 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.

14:38They were bailed out because the revolution in France was squashed, and they were bailed out by the French government. They're now in a position where they're still the dominant player in the bond market, but governments have stopped borrowing. So at that point, they look at there's an explosion of demand as railroads start getting constructed, both across Europe, in the US, and actually around the world. And the investment in railroads goes for 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

15:39third quarter of the 19th century. I want to add America to the picture in just a second, but as much as I'm sure you love all of your Rothschilds and 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? Well, yeah, no question. It's James the Rothschild. By the way, they were they were enabled in the 1820s by the Austrian king. So they now could be the Rothschild or fun Rothschild and the youngest son James that settled in Paris. And he was essentially the

16:43he did not have the sort of hard, scrabble 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 out very well with with the royal family, became once 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. So he had a friendship with a radical poet

17:43He 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 once the Napoleon after 1850 when Napoleon took over he was his prominent as Napoleon. And so he died when he died in 1867. 40,000 Parisians came out to pay respects. And it was it was like a royal funeral. The streets were lined with silent workers silently taking off their cats in respect. So to capture where we are in the story we have leading into the 1860s and the 1870s. This explosion

18:49of 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 and quote 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 man character who is Jay Cook. Tell me first where Jay Cook came from starting with the American Civil War. Okay so he was he was a total unknown when the Civil War broke out. But he had this

20:00great idea that the 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 to individual to in smaller denominations to individual Americans and use that to finance the Union government. Now it was a it was a revel it was essentially democratizing the this bond market which had been developed for in Europe for high net worth individuals. He started selling bonds in denominations of a thousand dollars two thousand dollars and had an army of salesmen he was sort of like a the Merrill Lynch. I don't know whether that illusion still holds today. He you're saying it's a it's a perth the American story right. You

21:06talk that this bond market tradition in America that's a risk to credit that's all about taking money from rich people and using it to either finance governments or finance large projects. 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 US government's going to pay back a few bucks plus interest and you'll be supporting the Union against the Confederacy and so he he takes this idea that his previously aristocratic and democratizes it. It sort of a perfectly American counterpoint to the Rothschilds. Yeah and so it was a brilliant idea it 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 and has you know builds a giant estate outside outside Philadelphia is worth $10 20 million dollars so he's a very well established figure. After the Civil War he looks

22:12around and tries to figure out what should I now help finance and he latches on to the railroad. 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 but 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 you know 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

23:13$100 million dollars for this the northern Pacific which was going to be the second transcontinental railroad. 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 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. When I like about this story so far is that the parallelism is perfect because in

24:15both Europe and in America the modern bond bond market is born as a system for raising IOUs for governments but then it evolves into becoming an IOU system for the railroads 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 Leacott 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. So the Franco-Prussian war occurs in 1870

25:22now Europe has been in a 20-year boom at 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 if you have a 20-year boom and then you get a sudden war you would think that would cause a collapse in financial in stock markets and 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 sort of three-year mini-boom and it starts out when the Germans impose the Germans defeated France

26:29hands-on hands-down in the battlefield and they 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 and which is a staggering amount of money yes to force the loser of a war to pay I mean this is this is completely unprecedented in modern times there's never been a trillion dollar penalty after war ends right and it would it would essentially be it would be 20% of French GDP so and Bismarck thinks this will keep France in its place for a whole generation they'll be so busy

27:38trying to pay this off that they will not be able to threaten me they will not be able to rebuild their military instead the French government turns to the Rothschilds and and in the greatest financial event in history as I call it is the fact that in the next two years in 1870 and 71 the Rothschilds are able to raise the trillion the billion dollars in two bond issuance one of which one one which is three tie at three times over subscribed and the second which is 15 times over subscribed 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

28:48boom as Aron says look if there is 15 trillion you know 15 billion dollars waiting to be tapped I want a piece of that and you get a series of mini booms in in on the US railroads in Germany and also on the London Stock Exchange it's such an interesting encounter in two to 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 and now I'm reading now from your own reporting in in the book Germany of course receives all one billion dollars from France it's trivially easy for France to to make this payment by the way that means a billion dollars entering Germany so Germany's now getting a trillion

29:52dollars stimulus from France 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 it's like a startup frenzy all these people are like oh hey if it's incredibly easy for the Rothschilds raise money for the nation of France hey what about my idea to like you know have a power loom 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 back to the US you've got money pouring into the railroads right now what happens next so uh the amount of railroad construction goes from three four thousand miles a year

30:53which was sort of sustainable to 7,000 miles of new track every year railroads getting built which you know into places where there is no you know 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 uh uh so that's the that's the second booh the the US railroad booh and then the third is that every country that had never been able to borrow on the capital markets comes to London and that and borrows uh on the London Stock Exchange and 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 uh the uh the German stock market and by implication because uh

32:01Austria was so closely related to Germany the Viennese stock market which both go up 200 200 to 300 percent uh and you've got the railroads exploding in the US and you have all these borrowers from sovereign borrowers in London we were 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 US deficits in 2026 are going to reach a record high of two trillion dollars the government is issuing an enormous amount of debt that is to say bonds in order to pay back uh 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

33:04is taking on money needs money to build transformers in the energy grid 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 US government we need bonds or equity for the hyperscalers we need money and investment for energy and housing enormous demand and 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 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 US today this brings us in your story to May 1873 and what happens so uh in May of 1873 the the any stock pocket has gone up 300

34:13percent uh in like Germany a whole a whole lot of new companies have been formed uh but by the beginning of 1873 there's growing resistance to buying these uh these new startups and as they 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 and cell phonebrotched child who runs the largest bank in Austria has been selling his position selling but uh selling stocks thinking they're grossly overvalued and the market cracks and in a day bank stocks go down by 45 percent other stocks go down by 20 to 30 percent it's sort of

35:19like the the crash that we had in 18 1987 so that's the first first thing that happens I should actually also mention that it occurred at a time when uh the the crown princess of Austria was getting married all of the royal family all of the royal families of Europe were in Vienna celebrating so there they were on one side of this city dancing the walls and having dinners and the other side of the city uh you get you're getting uh stockbrokers throwing themselves out of uh out of rooms and uh and you're getting uh a uh the equivalent of black black Friday that's May of 1873 in Vienna what happens in September of 1873 in the United States

36:20so meanwhile in the United States this explosion in uh in the number of railroads is actually led to a series of problems none of the uh only out of the 400 railroads only a hundred are able to pay dividends so essentially none of them are making money so there's they're cutting fairs uh 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 the this problems on the stock market in Vienna money starts becoming tighter and tighter and so they're they're having to pay up to borrow money in September jay cook

37:21uh discovers that he is not able to raise any more money uh for he he raised about 20 to 30 million of the hundred million he was trying to raise for the northern Pacific he's not able to raise anymore he starts putting his own money his own banks money into the railroad a little bit like uh as happened in 2008 when Lehman Brothers was putting its own capital into real estate uh and then at at one point in September the people who lent who his own creditors pulled the plug and essentially say no more uh and uh he is forced to close shop uh uh at now the psychological effect of that it the psychological effect is the equivalent

38:28today if a company like open AI said we are not able to raise the remaining capital we need to complete our model that it 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 in the country if he can't raise it what chance do I have as a uh as a sort of start up 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 a hundred railroads who've defaulted

39:35within that over the next three years half the railroads in the country go under 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 an oppression 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 tell me a little bit about Germany's silver trade and how that might have

40:37been 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 and you know it seems sort of it's it's it's a surprise to most people that France was the

41:41linchpin 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 they would absorb the gold and let's go of silver when there was a lot of silver coming onto the market they would absorb the silver so France the France and the Bank the France was essentially important and behind the Bank the France was the Rothschilds now when when Bismarck gets the billion dollars from as the penalty from France he decides okay I'm not going to only impose this giant penalty on France I 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

42:51and it's all aimed at weakening France and it 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 you know 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 and to do this in the middle of a financial crisis is doubly damaging and so over the next yeah in fact at last for the next 20 years the world is suffering from a shortage of liquidity

43:58caused by the demonetization as it's called of silver 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 that 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 there's a synchronous decline in stock markets in Vienna and Europe at the same time that Jay Cook realizes that his railroad empire is basically belly up and has to

44:59essentially 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 you know 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 I want to talk about two of the consequences that you mentioned and then pivot very quickly to what you see is the the lessons of 1873 to 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 administrations 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

46:03midterm 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 so here on the one hand is an argument that the aftermath of 1873 in the US 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 and quote so I love these two I mean I don't I don't love either of them they're absolutely horrific from a moral standpoint but they're really interesting in terms of letting us see how something is naughty and complex as German monetary policy can have its tendrils in things

47:10as far far far from long 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 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 the market how should AI moguls read your book okay so there's a there's probably a there's a positive there's a positive lesson and there's a negative lesson so the ultimately the boom ended so like all private investment booms investment goes shooting up and then it comes down and it was surprising how what a modest effect it had on GDP growth I mean it put the economy

48:11into 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 a true depression so that's the hope that this boom will feature out at some point but that it'll be a soft landing and you know the I suppose we can point to a few lessons in recent history the at the in 99 2000 when the

49:14internet bubble burst we did you know we got a modest recession but the stock market and the stock market fall was dramatic but the wider impact was actually relatively muted because we we were able to ease monetary policy there were a whole series of adjustments that took place so that's the that's the positive lesson I suppose the negative is 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

50:19was the geopolitics of Germany's Germany versus France now you may think well what relevance does that have for today I'll give you a modern day analogy in 2008 uh handpulsing who was the secretary of the treasury was at the Beijing Olympics and he heard a rumor that Russia had approached France had approached China and proposed that they jointly sell all their US agency bonds in order to hit the US while it's down now and luckily China recognizing that it was you know it was it had too much of a stake in the viability of the global financial system to turn them down but just the fact that this was raised

51:25should pose sort of a risk a sense that these things can get out of control uh and you who knows where they can go so that's the sort of negative lesson that I would uh I would draw two of your books one lords of finance the bankers that broke the world in 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 and it doesn't 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

52:25global great depression that completely reshaped the world reshaped American politics reshaped Russian politics German politics certainly maybe helped to cause world war two absolutely catastrophic and then in 1873 you have German monetary policy which was somewhere between monetary policy and an economic weapon you know designed to destroy the monetary policy of another of another country um 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 economic bad monetary policy is and by by consequence how important good monetary policy is I mean that there there has been a revolution certainly in terms of moving the on 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 18 1980s 2007 2008 we haven't had a deflationary crisis we haven't had a a decade

53:33of the kind of deflation or inflation that we often saw in in the 19th century so is there is there a way in which like 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 as a consequence the Republican power damn destroyed the Republican parties hold on power for a generation the reason he did that was the US had come off the civil war it had gone off gold he thought that the US

54:40would never be taken seriously as a country if its currency didn't go back on to gold so he had a long run gold to go back on to gold which involved staying tight on the other hand in the in the depression that came in 1873 the pressure was to ease monetary policy so he had a short term problem to try to which cause called for easing monetary policy and a long run goal for restoring the US back on to gold and it's that tension between the short run gold and the long run gold that led into do the wrong thing if you like so if we face a situation going forward you know we have multiple goals we have and we have multiple constraints at the moment we have a a budget deficit

55:44that 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 the for whoever is running cent monetary policy for the US well for now it appears to be Kevin Worsh I hope he's not a puppet with Trump holding the strings but good luck Kevin thank you the ock it this is really interesting thank you for the history lesson and for the for the present lessons well okay thank you Derek