1873

Economist Ahamed follows his Pulitzer Prize–winning Lords of Finance with another cautionary tale of economic catastrophe.

In the spring of 1873, the Vienna Stock Exchange collapsed. Market watchers weren’t surprised: A bubble that began with housing and that had prompted a frenzy of investment burst, and, in a single day, the exchange lost 45% of its value. Ahamed doesn’t belabor the point—“It does not actually take enormous prescience to spot when a market has entered bubble territory,” he writes—but there but for the year is our recent Great Recession. Although the world economy wasn’t so closely integrated as it is today, the 1873 panic spread nonetheless: In New York, $1 billion of railway bonds went into default, and everywhere the “extraordinary boom” of the post–Civil War years went bust in a “cascading chain” of economic reversals. What ensued, by Ahamed’s lively account, was a series of reforms that deepened the crisis. One was the abandonment of the silver standard that backed currency to that of gold alone, casting off the “bimetallic” system and setting off a massive wave of deflation, which, in the loopy world of finance, meant that borrowers suffered and creditors—mainly the big banks—prospered. The author traces some of the predictable effects, among them a marked rise in antisemitism, with incendiary writers and populists claiming that the Rothschilds and other Jewish bankers controlled the global economy and were engaged in “an eighteen-hundred-year conspiracy to dominate the world.” In the U.S., both Democratic and Republican leaders were beholden to the establishment and “proved unwilling to challenge the nation’s financial elite on the core issue of monetary policy”—again, very much like today. Overall, Ahamed notes, the world’s major economies fell into a recession that lasted for nearly the entire decade of the 1870s—a pattern that would be repeated in years to follow.

An exemplary work of economic history, with many lessons for the present.