“Be optimistic about the boom, but don’t buy the stock.” — Liaquat Ahamed on the AI bubble
Yesterday, Alexander Starritt argued that the 2008 financial crash ruined the lives of his generation. But compared with the 1873 great crash, 2008 looks like a tremor. As the Pulitzer Prize-winning economic historian Liaquat Ahamed argues in 1873, this late 19th century economic crash was the first truly global financial crisis.
In 1870, three globalising infrastructure projects were completed in quick succession: the US transcontinental railroad, the Suez Canal, and the Trans-India railroad linking Bombay to Calcutta. Into this newly integrated global economy, the Franco-Prussian War injected a trillion-dollar-equivalent indemnity that the Rothschilds helped France raise — and the resulting dramatic capital flows produced three simultaneous bubbles in Berlin, Vienna, and New York. Thus the perfect economic storm of 1873. A French journalist named Jules Verne worked out that for the first time, you could circumnavigate the globe in less than eighty days. Around the world in one global economic crisis.
The lesson for posterity, Ahamed warns, is that the authorities made a catastrophic error by doubling down on the gold standard, producing decades of deflation that triggered an anti-semitic and anti-globalist populism, and ultimately led to the Great Depression of the 1930s. So what does that tell us about today’s AI mania, which is about to be rocketed by three trillion-dollar IPOs? Be optimistic about the boom, the wise Ahamed says. But don’t buy the stock.
