WEBVTT - Are We Repeating the Biggest Mistake of 1873? 0:00:02.720 --> 0:00:09.880 Bloomberg Audio Studios, podcasts, radio news. Hello Marrin Dogs Money listeners, 0:00:09.920 --> 0:00:12.520 it is that time of year. The Edinburgh Festival Fringe 0:00:12.600 --> 0:00:15.240 is almost here and I will once again be recording 0:00:15.280 --> 0:00:18.800 podcast episodes in front of a live audience from Panmea House, 0:00:19.079 --> 0:00:22.480 the final home of Adam Smith. This year's shows will 0:00:22.480 --> 0:00:25.400 take place on August twenty seventh, twenty eighth, and twenty 0:00:25.520 --> 0:00:28.440 ninth at two pm. Get your tickets before it sells out. 0:00:28.520 --> 0:00:42.160 The link is in the show notes. Welcome to Maren 0:00:42.159 --> 0:00:44.479 Doggs Money, the podcasting with people who know the markets 0:00:44.520 --> 0:00:47.599 Explain the markets. I'm Maren's sumset Web. This week I'm 0:00:47.600 --> 0:00:49.760 speaking with pull at the prize winning author Leo kat 0:00:49.800 --> 0:00:52.880 Aarbad about his new book eighteen seventy three, The First 0:00:52.960 --> 0:00:56.680 Great Depression and the Making of the Modern World. It's 0:00:56.720 --> 0:00:58.280 a great read. You can take it to the beach. 0:00:58.280 --> 0:00:59.920 I promise you you'll like it just as much as 0:01:00.040 --> 0:01:02.040 all the romances as you were planning to read there. 0:01:02.440 --> 0:01:05.280 It covers the eighteen seventy three crash, which is particularly 0:01:05.360 --> 0:01:09.240 interesting because it was the first global crash across bond 0:01:09.280 --> 0:01:13.480 markets and stock markets. It also had extraordinary amount of 0:01:13.800 --> 0:01:16.600 fallout some of which you could argue is still with 0:01:16.680 --> 0:01:20.160 us today. In our conversation, we reflect on the parallels 0:01:20.200 --> 0:01:22.280 between then and now and the lessons that we can 0:01:22.319 --> 0:01:26.400 take from those early crashes. I loved this book, do 0:01:26.440 --> 0:01:30.039 you know? I love this book basically property porn, right. 0:01:32.880 --> 0:01:38.080 You know. I did an event in Newport, Rhode Island, 0:01:39.040 --> 0:01:45.360 and they wanted to compare the Vanderbilt mansions with Rothschild's mansions, 0:01:45.360 --> 0:01:48.320 and basically the Rothschild's mansions beat them. 0:01:48.880 --> 0:01:54.680 You know, I mean, this is this is the best 0:01:54.680 --> 0:01:56.640 bit about it. You know, I start off when I'm 0:01:56.640 --> 0:02:02.360 looking at no money supply and gold droughts and market crashes, evaluations, railways, capas, 0:02:02.360 --> 0:02:05.880 comparing Cavic summers. But actually I'm frantically turning the pages 0:02:05.920 --> 0:02:08.560 so I can find out about the next guy's great house. 0:02:08.600 --> 0:02:10.880 You know what happens. You know, Jim Fiskin and Jay 0:02:10.919 --> 0:02:12.920 Gold they put an opera house. What was their actual 0:02:12.960 --> 0:02:16.280 house like? So that's that's really what I enjoyed most 0:02:16.320 --> 0:02:19.720 about the But I know that's not the point. 0:02:19.760 --> 0:02:22.200 So why don't we Why don't we know? It is 0:02:22.280 --> 0:02:26.280 hardly the point, because I think livens. 0:02:25.880 --> 0:02:29.799 It up absolutely A lot of it reads like like fiction, 0:02:30.080 --> 0:02:31.919 you know, reads like it reads like a great novel 0:02:31.960 --> 0:02:34.480 in it and gallops along as you move from from 0:02:34.560 --> 0:02:37.320 grand party to grand party to grand party. And also 0:02:37.919 --> 0:02:39.760 I tell you what it's missing. Tell you what it's missing, 0:02:40.000 --> 0:02:44.000 like more pictures. I want to see the dresses at 0:02:44.080 --> 0:02:46.600 the exhibition with all the mudge, and I want to 0:02:46.639 --> 0:02:49.000 see what everyone's wearing when three thousand people go to 0:02:49.040 --> 0:02:52.119 the ball for the opening of the Swiss Canal, and 0:02:52.680 --> 0:02:55.600 what the Emperor's daughter is wearing when she gets married 0:02:55.639 --> 0:02:57.440 in Vienna's the stock market crashes. 0:02:57.639 --> 0:03:02.600 Right, Okay, that's actually great advice. I will push that. 0:03:03.080 --> 0:03:05.560 All right, brilliant, Thanks you. So that's all to look 0:03:05.600 --> 0:03:08.639 forward to. So most of you should immediately go out 0:03:08.720 --> 0:03:11.200 and buy the hard the hard copy of this a 0:03:11.240 --> 0:03:13.640 wonderful book, and the clue of what it's about is 0:03:13.639 --> 0:03:16.639 in the title eighteen seventy three. But if you want 0:03:16.760 --> 0:03:19.280 pictures of people in ball gowns, wave for the paperback. 0:03:19.360 --> 0:03:26.239 Is that the Yeah, that's brilliant, got promise. So let's 0:03:26.320 --> 0:03:28.600 talk about what this is actually about. Eighteen seventy three. 0:03:28.680 --> 0:03:31.440 It's called eighteen seventy three the First Great Depression and 0:03:31.480 --> 0:03:33.799 the making of the modern world. I mean, it is 0:03:33.840 --> 0:03:36.839 fascinating because you make the case in the book that 0:03:37.320 --> 0:03:40.160 pretty much everything that happened in the following one hundred 0:03:40.240 --> 0:03:45.600 years came from this one crash, the first global crash. 0:03:45.920 --> 0:03:48.520 So what I would like to do, if you don't mind, 0:03:48.640 --> 0:03:51.360 is to start with a run up to how we 0:03:51.520 --> 0:03:54.320 got to eighteen seventy three the great In fact, not 0:03:54.640 --> 0:03:56.200 as far as eighteen seventy three. It's kind of up 0:03:56.200 --> 0:03:58.760 to eighteen seventy before it turns into a speculator boom, 0:03:58.800 --> 0:04:02.080 isn't it up until there? And it's really really strong 0:04:02.120 --> 0:04:07.200 economic growth, globalization, lots of really fantastic things happening, amazing 0:04:07.280 --> 0:04:12.840 revolutions in transportation, in communication, it's the railway booms. So 0:04:12.840 --> 0:04:15.720 many exciting things happened. And of course back to how 0:04:15.760 --> 0:04:17.960 amazingly you write and you bring out all these wonderful 0:04:17.960 --> 0:04:20.320 little things. We're talking about the railways, we're talking about 0:04:20.320 --> 0:04:23.120 the series canal, and then you remind us that this 0:04:23.160 --> 0:04:25.000 is where Jewels wen't got the idea for around the 0:04:25.000 --> 0:04:27.480 world in eighty days, right, Exactly where do we get 0:04:27.480 --> 0:04:29.200 to the point where we were having, you know, eighty 0:04:29.279 --> 0:04:32.440 ten percent GDP growth across across the world. 0:04:33.080 --> 0:04:38.520 What started it was the gold rush, because Europe, which 0:04:38.640 --> 0:04:41.560 was the center of the world, went through a terrible 0:04:41.640 --> 0:04:46.840 depression in the eighteen forties, fueled by bad harvests and 0:04:46.920 --> 0:04:50.680 by revolution, I mean they actually thought every government in 0:04:50.720 --> 0:04:54.120 Europe was going to fall and you know, we'd have 0:04:54.200 --> 0:04:58.479 the equivalent of the Russian Revolution across Europe. And that 0:04:58.640 --> 0:05:03.880 didn't happen. But at the same time, they discovered gold 0:05:04.120 --> 0:05:09.159 in the United States and that provided the fuel to 0:05:09.320 --> 0:05:15.200 get the global economy going. And you had bankers like 0:05:15.320 --> 0:05:19.880 the Rothschild who had made a ton of money in 0:05:19.920 --> 0:05:23.960 the early part of the nineteenth century lending to governments 0:05:24.839 --> 0:05:29.400 who jumped on the bandwagon and started lending for infrastructure 0:05:30.560 --> 0:05:34.680 and particularly the railroads, to the private sector, and you 0:05:34.800 --> 0:05:39.160 got a massive boom in lending. And it was a 0:05:39.320 --> 0:05:43.280 boom based on the bond market. Now everyone thinks the 0:05:43.320 --> 0:05:47.320 bond market is a sleepy place where who don't want 0:05:47.360 --> 0:05:50.760 to take risk put their money, but it was essentially 0:05:51.080 --> 0:05:57.960 that which provided the impetus to the growth. So the 0:05:58.000 --> 0:06:02.640 bond market grew by five times in the two decades 0:06:02.680 --> 0:06:07.640 from eighteen fifty to eighteen seventy, and all of it 0:06:07.720 --> 0:06:14.560 went into big projects like the railroads, like the Sewers Canal, 0:06:15.960 --> 0:06:22.320 like the trans across India rail link, which set the 0:06:22.360 --> 0:06:28.080 scene for that wonderful article which a French newspaper wrote 0:06:28.640 --> 0:06:32.040 in eighteen seventy saying now you can go across the 0:06:32.080 --> 0:06:37.040 world in eighty days. And Jules Verne, who was a 0:06:37.080 --> 0:06:43.040 young adventure novelist based in France, stumbled across this article 0:06:43.080 --> 0:06:46.279 because the article even gave an itinery for what a 0:06:46.360 --> 0:06:48.560 journey like this would look like, so. 0:06:48.520 --> 0:06:50.800 He didn't even think of any of this himself. Nick 0:06:50.839 --> 0:06:52.600 did all over the newspaper articles. 0:06:53.000 --> 0:06:55.520 He probably didn't realize it would make a great movie 0:06:55.560 --> 0:06:57.600 as well, and. 0:06:57.560 --> 0:06:59.840 That we'd still be having, you know, television shows based 0:06:59.880 --> 0:07:03.680 on today. Fascinating, right, And one of the interesting things 0:07:03.720 --> 0:07:06.599 about this great bond boom was that a lot of 0:07:06.600 --> 0:07:08.320 this was retail money. So this is one of the 0:07:08.320 --> 0:07:11.360 first times we suddenly were gathering the savings of ordinary 0:07:11.360 --> 0:07:14.640 people across the world and shoveling it through middleman vehicles 0:07:14.800 --> 0:07:18.000 into huge infrastructure projects. I mean, that's a huge chance. 0:07:18.200 --> 0:07:20.240 And of course the basis of the investment trust industry 0:07:20.240 --> 0:07:22.160 in the UK, which we come back to another time. 0:07:22.200 --> 0:07:26.560 But fascinating, Yeah, not so much ordinary people, but upper 0:07:26.600 --> 0:07:31.560 middle class people sort of. We were people high network individuals. 0:07:31.960 --> 0:07:35.520 The average man in the street wasn't buying bonds, which 0:07:35.600 --> 0:07:38.760 actually would prove to be part of the savior when 0:07:38.760 --> 0:07:43.080 the whole thing went went south, because the people who 0:07:43.200 --> 0:07:47.240 lost money could actually afford to lose money. But yes, 0:07:47.280 --> 0:07:50.600 you're right, I mean it was retail. It was not institutional, 0:07:51.320 --> 0:07:55.920 and the institutional came later as you as you mentioned 0:07:55.960 --> 0:07:57.960 with investment trusts. 0:07:58.640 --> 0:08:01.080 I mean, it wasn't seen this all the way through 0:08:01.120 --> 0:08:03.960 the early part of the nineteenth century. Of course, there 0:08:03.960 --> 0:08:05.840 were two other crashes, one in the thirties one in 0:08:05.840 --> 0:08:08.920 the fifties, right, but they were quickly dealt with, or 0:08:08.920 --> 0:08:10.760 not really dealt with. They fixed themselves. 0:08:11.040 --> 0:08:15.880 Yeah, and they were to some degree more localized and 0:08:16.160 --> 0:08:19.440 they were less global. I mean, in the eighteen thirties, 0:08:19.520 --> 0:08:23.240 the Canal boom ended in the US and that caused 0:08:23.440 --> 0:08:26.840 a whole lot of repercussions in the UK. Most of 0:08:26.880 --> 0:08:31.720 Europe wasn't involved, so it was primarily an Anglo Saxon thing. 0:08:32.559 --> 0:08:37.400 There were many crashes during the eighteen sixties. The first 0:08:37.840 --> 0:08:41.800 was when Jay Gould tried to corner the gold supply 0:08:41.920 --> 0:08:42.880 of the United States. 0:08:42.960 --> 0:08:45.440 I enjoyed that very much. Indeed, this is just after 0:08:45.440 --> 0:08:46.840 we bought the opera house right. 0:08:47.280 --> 0:08:52.679 Right, and bribe the president's brother in law, So. 0:08:52.840 --> 0:08:54.640 Which is when it will go crashing down? That was 0:08:54.679 --> 0:08:57.080 his mistake, overreach, right. 0:08:57.800 --> 0:09:02.600 And there was another crash in Britain when a discount house, 0:09:02.640 --> 0:09:05.600 the first one of the big discount houses, went under. 0:09:06.240 --> 0:09:09.840 But they were all localized and there were even wars. 0:09:09.920 --> 0:09:12.760 There was Civil War in the United States, there was 0:09:12.800 --> 0:09:18.280 the Crimean War, there was Prussia versus Austria. The economy 0:09:18.480 --> 0:09:23.600 was surprisingly resilient despite these little hiccups. 0:09:23.880 --> 0:09:26.160 Yeah, and that's interesting. We will come on to that 0:09:26.520 --> 0:09:29.760 about whether economies are incredibly resilient and maybe the best 0:09:29.760 --> 0:09:32.679 things you do is just leave them alone, because when 0:09:32.679 --> 0:09:34.920 we get to eighteen seventy three, of course, we find 0:09:34.960 --> 0:09:37.920 out that everyone decided to just not leave it alone. 0:09:37.920 --> 0:09:40.920 They succumbed, didn't they to what we call something must 0:09:40.920 --> 0:09:43.680 be done ism, and that's when things started to get nasty. 0:09:43.920 --> 0:09:47.760 But the pivotal bit is there war between Prussia and 0:09:47.840 --> 0:09:50.760 France that starts nineteen seventy right, I don't know, it's 0:09:50.800 --> 0:09:54.680 a short war. Yeah, sorry, eighteen seventy it's a short war, 0:09:55.120 --> 0:10:00.120 but it has enormous repercussions because France is obliged to 0:10:00.160 --> 0:10:05.600 pay enormous reparations to Germany, to the tune of how 0:10:05.679 --> 0:10:07.160 much around billion dollars. 0:10:06.920 --> 0:10:11.600 Billion dollars, which would be equivalent to one point two 0:10:11.559 --> 0:10:13.880 to one point three trillion dollars today. 0:10:13.960 --> 0:10:17.600 Yeah, and so pressure thought that this is fine, because 0:10:17.600 --> 0:10:19.520 that's so much money is going to take France like 0:10:19.559 --> 0:10:21.679 forever to pay that officer. This is going to keep 0:10:21.720 --> 0:10:24.480 them down, down, down, out of our way. We've dealt 0:10:24.480 --> 0:10:28.000 with his enemy indefinitely. Instead of which, they now managed 0:10:28.040 --> 0:10:30.240 to go out and get the bond markets to give 0:10:30.280 --> 0:10:32.160 them a billion bugs over two years. 0:10:32.360 --> 0:10:36.040 And it was the Rothschilds who were the centerpiece of 0:10:36.880 --> 0:10:41.719 that because they had an incredible reach. They raised two 0:10:41.840 --> 0:10:46.280 bond issues which raised a billion dollars. But the most 0:10:46.320 --> 0:10:51.400 important thing was they were in one case three times 0:10:51.440 --> 0:10:55.200 oversubscribed and the other case twelve times over subscribe. 0:10:55.240 --> 0:10:56.800 And where was that money coming from? 0:10:57.480 --> 0:11:02.000 Well that was the astounding thing. People suddenly realized that 0:11:02.040 --> 0:11:06.440 there's all this money that's been in the woodwork and 0:11:06.600 --> 0:11:10.880 is just looking for if you can only provide it 0:11:10.920 --> 0:11:14.000 with a return, will come out of the woodwork, because 0:11:14.080 --> 0:11:18.200 until then government bond deals had gone down to three 0:11:18.240 --> 0:11:23.240 percent in the UK, four percent in France. The sort 0:11:23.280 --> 0:11:29.560 of revelation that you could raise twelve billion dollars from 0:11:29.600 --> 0:11:34.080 the bondsuit, Yeah, just got everyone so excited. The London 0:11:34.120 --> 0:11:36.439 Stock Exchange went crazy. 0:11:37.080 --> 0:11:39.840 And well because everyone who didn't get into this bond issue, 0:11:39.960 --> 0:11:41.160 the money is still out. 0:11:40.960 --> 0:11:45.960 There, exactly. And also in the US railroads were it 0:11:46.040 --> 0:11:50.079 was a perfectly rational boom until then, and then suddenly 0:11:50.679 --> 0:11:54.520 railroad bond asstudents doubled, so we suddenly went up to 0:11:54.960 --> 0:11:58.679 five hundred million dollars a year in an economy that's 0:11:58.920 --> 0:12:03.000 roughly five percent of their GDP, which you know today 0:12:03.080 --> 0:12:07.360 would be one point five trillion dollars in the US. 0:12:07.480 --> 0:12:11.480 So at one point five trillion dollars that went into 0:12:11.520 --> 0:12:16.319 SpaceX is what went into the railroads. 0:12:16.480 --> 0:12:20.320 Yeah, fascinating. And then of course that billion dollars went 0:12:20.800 --> 0:12:25.079 to Germany in a two year period. Yes, and they 0:12:25.160 --> 0:12:29.840 then had twenty five percent of GDP to play within cash. 0:12:30.280 --> 0:12:34.600 Right, and that was totally mismanaged. They could have feded 0:12:34.760 --> 0:12:40.920 into the economy at a slower pace, but injecting twenty 0:12:40.960 --> 0:12:46.240 five percent of GDP in liquid cash into an economy 0:12:46.360 --> 0:12:52.600 that was relatively unsophisticated, where everyone who owned government bonds 0:12:53.040 --> 0:12:57.160 found their government bonds paid off, paid off, meaning redeemed 0:12:57.760 --> 0:13:00.960 suddenly looked around and said what do I do with 0:13:01.000 --> 0:13:06.680 this money? And was looking around for opportunities and learned behold, 0:13:06.720 --> 0:13:11.640 a whole lot of Charlatan's appeared on the seat to 0:13:11.679 --> 0:13:15.000 try to liberate them with their money. It was not 0:13:15.040 --> 0:13:18.480 only a snock market boom, but it was a giant 0:13:18.600 --> 0:13:23.840 ipo boom, and the stock market, which had maybe thirty 0:13:23.920 --> 0:13:29.200 or forty companies listed, suddenly ballooned to five hundred, six 0:13:29.280 --> 0:13:33.320 hundred companies. And these companies, a lot of them were banks, 0:13:33.559 --> 0:13:35.920 a lot of them were real estate, a lot of 0:13:35.960 --> 0:13:40.240 them were railroad companies. But they were also all sorts 0:13:40.280 --> 0:13:44.080 of things, you know, setting up companies to explore the 0:13:44.120 --> 0:13:49.360 northern regions of Europe, companies to you know, I don't know, 0:13:49.640 --> 0:13:56.200 bill of look for banana plantations in West Africa. So 0:13:56.320 --> 0:13:58.520 it was a crazy time. 0:13:58.520 --> 0:14:00.480 And a lot of fraud in this around the same 0:14:00.520 --> 0:14:02.880 time might be getting my timing room, but around the 0:14:02.880 --> 0:14:04.840 same time as the diving bell bubble in the UK. 0:14:05.080 --> 0:14:07.520 But there were loads of small companies were set up 0:14:07.559 --> 0:14:12.240 to invest in diving bell technology to go and explore 0:14:12.280 --> 0:14:15.640 for shipwrecks. Oh, okay, in course the same thing, lots 0:14:15.640 --> 0:14:18.640 of points of shells and endless fraud. So in these 0:14:18.760 --> 0:14:22.120 last years eighteen seventy two seventy three were moving into 0:14:22.760 --> 0:14:25.760 broths called the bezel bit. When there's lots of fraud 0:14:25.920 --> 0:14:29.240 and the fraudsters are riding high and the investors haven't 0:14:29.320 --> 0:14:31.160 yet yet realized that it's a fraud, so it's a 0:14:31.160 --> 0:14:33.000 great time. It's a wonderful time. 0:14:33.480 --> 0:14:36.960 Everyone's happy, they're richer. Everyone thinks they're richer, both the 0:14:37.000 --> 0:14:40.400 fraudsters and the people who've had their money in bezzeled. 0:14:40.840 --> 0:14:45.120 So yes, it is a great time. And then well, 0:14:45.320 --> 0:14:48.440 and then, like all great times, it comes to an end. 0:14:48.960 --> 0:14:54.880 The first sign is in Vienna, which was an ancillary 0:14:55.200 --> 0:14:58.560 of the German stock market, and that had gone up 0:14:58.640 --> 0:15:04.520 three hundred percent, and suddenly in the beginning of eighteen 0:15:04.560 --> 0:15:10.760 seventy three, investors began to question whether all these new 0:15:10.840 --> 0:15:15.640 companies had a business plan. And for a while the 0:15:15.680 --> 0:15:21.000 markets stayed up at the highs and didn't realize a 0:15:21.000 --> 0:15:24.800 little bit like these road runner cartoons that didn't realize 0:15:25.480 --> 0:15:28.960 the floor had been taken away from it. And then 0:15:29.280 --> 0:15:35.840 in May of eighteen seventy three crashes and bank stocks 0:15:35.880 --> 0:15:40.040 fell by forty five percent in one day. And you 0:15:40.160 --> 0:15:45.800 had this serial scene where the emperor's daughter was getting married, 0:15:46.720 --> 0:15:53.080 and every major royal family from Europe had collected in Vienna, 0:15:53.200 --> 0:15:58.560 so the Prince of Wales and all of the major princes, 0:15:58.680 --> 0:16:03.440 the crown Prince of and they were all having these 0:16:03.960 --> 0:16:08.840 magnificent balls and dancing to the music of Johann Strauss. 0:16:09.040 --> 0:16:10.120 Is what we need pictures of. 0:16:11.920 --> 0:16:16.120 Well. But meanwhile, just down the road, because the stock 0:16:16.240 --> 0:16:20.440 market was next to the palace, the stock market was crashing. 0:16:21.080 --> 0:16:25.720 You got the first wave of people committing suicide because 0:16:25.720 --> 0:16:30.480 they'd lost money, although even those suicides were frauds because 0:16:30.560 --> 0:16:36.160 people had bought equities on margin and realized that the 0:16:36.200 --> 0:16:40.560 way to escape their creditors was to go to the canal, 0:16:41.200 --> 0:16:44.560 pile their clothes at the side of the canal, jump 0:16:44.600 --> 0:16:47.920 into the canal, swim to the other side, and disappear. 0:16:48.960 --> 0:16:52.160 That really is a fitting end to the buzzer, isn't it. Yeah, 0:16:52.200 --> 0:16:54.320 And this was the same time it did I read 0:16:54.360 --> 0:16:56.680 in the right order the Enner exhibition was at the 0:16:56.720 --> 0:16:57.160 same time. 0:16:57.640 --> 0:16:59.960 Yeah, and the exhibition was going on, and that prove 0:17:00.200 --> 0:17:05.240 to be a total failure. So they'd expected nineteen million 0:17:05.280 --> 0:17:06.359 people to turn up. 0:17:06.520 --> 0:17:07.280 Nineteen million. 0:17:07.480 --> 0:17:12.600 Oh, these great exhibitions were giant affairs. I mean they 0:17:12.600 --> 0:17:15.399 started you know, it started out with the UK in 0:17:15.440 --> 0:17:18.320 the eighteen fifties, but there had been one in Paris 0:17:18.400 --> 0:17:21.000 and then another one in the UK. And this was 0:17:21.160 --> 0:17:24.840 Vienna's attempt to say we're a sirous country and we're 0:17:24.880 --> 0:17:30.720 a serrous city. They'd expected nineteen million. They'd torn down 0:17:31.000 --> 0:17:36.720 off the palace gardens and established pavilions, and only seven 0:17:36.760 --> 0:17:39.639 million people turned up. So it was not a people. 0:17:39.840 --> 0:17:43.280 It was a series of little minor disasters, a cholera 0:17:44.040 --> 0:17:48.280 outbreak and the cab drivers of Vienna decided to go 0:17:48.359 --> 0:17:49.119 out on strike. 0:17:49.240 --> 0:17:52.600 Of course, they did standard stuff. Nothing ever changes, does it. 0:17:52.840 --> 0:17:55.080 One of the little tipbits in this bit that I 0:17:55.160 --> 0:17:57.880 really enjoyed was a little bit you wrote about Col 0:17:57.960 --> 0:18:00.359 Marx in the Crash and how he was actually the 0:18:00.400 --> 0:18:02.159 kind of person who predicts crushes all the time, and 0:18:02.200 --> 0:18:05.520 he'd been at it for ages and was finally right, 0:18:05.600 --> 0:18:08.840 and he'd just become famous because he'd finally got some 0:18:09.160 --> 0:18:12.320 traction with dust capital because first edition pretty much no 0:18:12.359 --> 0:18:13.840 one read it, and let him manage to get it 0:18:13.840 --> 0:18:17.440 printed in Russia and it can squeezed through the Tzarist 0:18:17.600 --> 0:18:20.280 sensors because they figured it was so long, so boring, 0:18:20.320 --> 0:18:22.640 and so complicated, no one ever read it. But they did, 0:18:23.080 --> 0:18:25.800 and suddenly he's quite famous predicts the crash, and now 0:18:25.840 --> 0:18:26.800 he's more famous. 0:18:27.359 --> 0:18:32.679 Yeah, And as you said, throughout the eighteen fifties and 0:18:32.800 --> 0:18:37.879 sixties he had been saying, oh, this is it, and 0:18:37.960 --> 0:18:39.919 I mean it got to a stage where even his 0:18:40.119 --> 0:18:45.040 friends started pulling his leg, which he didn't react well to. 0:18:45.600 --> 0:18:48.760 Better. This is it. Possibly the only area in which 0:18:49.200 --> 0:18:51.000 Marx's and I have something in common. 0:18:52.040 --> 0:18:54.320 That you're always predicting crash, instantly. 0:18:54.040 --> 0:18:59.760 Predicting crashes at the wrong time. Okay, so a crash 0:19:00.200 --> 0:19:02.719 in Vienna, but then because it has been a global 0:19:02.720 --> 0:19:05.600 boom and it has been a global bubble, it spreads 0:19:05.800 --> 0:19:07.440 there is contagion across the world. 0:19:07.320 --> 0:19:11.800 Right, yes, it Actually you get this sort of false 0:19:11.920 --> 0:19:16.240 period of car So it crashes in Vienna and everyone 0:19:16.280 --> 0:19:18.600 says there's going to be a global disaster, and then 0:19:18.640 --> 0:19:23.720 suddenly nothing happened, and you get a period of three 0:19:23.880 --> 0:19:27.359 four months where nothing happens. So they said, okay, maybe 0:19:27.520 --> 0:19:31.239 Vienna was just overpriced, and it was a you know, 0:19:31.359 --> 0:19:33.400 it was a local incident. 0:19:33.320 --> 0:19:35.960 And everywhere else the earnings will rise to match the price. 0:19:36.400 --> 0:19:37.240 It'll be fine. 0:19:37.760 --> 0:19:42.120 But meanwhile, Jay Cook, who is the premier investment banker, 0:19:42.320 --> 0:19:45.560 had raised two billion dollars for the Union government during 0:19:45.600 --> 0:19:50.560 the Civil War, suddenly finds that because of the disruptions 0:19:50.600 --> 0:19:54.840 in Europe, he is not able to raise capital, and 0:19:54.880 --> 0:19:58.640 he runs out of capital in the middle of constructing 0:19:58.800 --> 0:20:03.000 the second transcont railroad. And it was a little bit 0:20:03.119 --> 0:20:07.080 like the Lehman brother's story. He started injecting his own 0:20:07.200 --> 0:20:11.959 bank's money into the project, he's not able to complete it, 0:20:13.000 --> 0:20:17.800 and when he announces that I cannot raise the capital, 0:20:18.880 --> 0:20:23.399 there is total panic, the sort of psychological panic that 0:20:23.480 --> 0:20:27.800 happened after Lehman. People said, look, if Jake Cook, who's 0:20:27.840 --> 0:20:30.760 a friend of the president, is the most well connected 0:20:30.800 --> 0:20:35.560 banker in the United States, can't raise one hundred million dollars, 0:20:36.000 --> 0:20:41.440 then what hope do we have? And every railroad stops construction. 0:20:42.520 --> 0:20:45.920 So there were five hundred railroad companies in the United 0:20:45.920 --> 0:20:49.040 States by the end of the year. A third of 0:20:49.040 --> 0:20:53.600 them had stopped paying dividends. By the end of five years, 0:20:54.040 --> 0:20:55.600 half of them had defaulted. 0:20:55.720 --> 0:20:57.200 Everything comes crashing. 0:20:56.840 --> 0:21:00.360 Down, everything comes crashing down, and. 0:21:00.359 --> 0:21:03.679 At the same time everything's still going horribly in Europe 0:21:03.760 --> 0:21:06.560 seventy percent of the banks in Vienna, of Gombast, et cetera. 0:21:06.920 --> 0:21:07.919 It's global connage. 0:21:08.200 --> 0:21:09.200 Yes, okay, So. 0:21:09.240 --> 0:21:11.719 Then we get to the bit where things start to 0:21:11.760 --> 0:21:14.199 go wrong in a monetary sense. And one of the 0:21:14.200 --> 0:21:16.359 things that I think you you when you look at 0:21:16.400 --> 0:21:18.040 all the books you write, alled it. This is just 0:21:18.080 --> 0:21:20.240 like a book, I know. But is was there a 0:21:20.240 --> 0:21:22.760 big mistake? Was there a big mistake? Was there a 0:21:22.800 --> 0:21:26.640 pivotal point when everybody does something completely wrong? And this 0:21:26.680 --> 0:21:27.920 is the bit of that story. 0:21:28.600 --> 0:21:33.840 Yes. So in a crisis, everyone scrambles for a safe asset, 0:21:35.359 --> 0:21:38.480 and in those days the two safe assets were gold 0:21:38.520 --> 0:21:44.960 and silver. But in eighteen seventy three, Bismarck, having defeated 0:21:45.080 --> 0:21:51.679 France on the battlefield, decides to double down and try 0:21:51.720 --> 0:21:56.880 to destroy France financially. And he takes the billion dollars 0:21:56.920 --> 0:22:00.880 that he received from France and you uses it to 0:22:01.000 --> 0:22:05.080 convert all his silver, all the silver that he had 0:22:05.200 --> 0:22:10.680 in the central bank into gold. So silver prices plunge. 0:22:11.400 --> 0:22:17.200 That causes every bank in Europe to panic and dump 0:22:17.280 --> 0:22:21.280 their silver, which causes silver prices to go down even further. 0:22:22.240 --> 0:22:25.640 One of the two safe assets that everyone had relied on, 0:22:26.119 --> 0:22:30.600 which was silver, suddenly is plunging in price, so they 0:22:30.720 --> 0:22:35.280 all scrambled into gold. Now, if everyone in the world 0:22:35.400 --> 0:22:39.960 is scrambling into gold, what does it cause. It causes 0:22:40.160 --> 0:22:45.960 a giant shortage of liquidity. So the world might have 0:22:46.040 --> 0:22:50.159 been able to cope with a shift from a system 0:22:50.240 --> 0:22:54.720 based on both silver and gold into gold under normal circumstances, 0:22:55.320 --> 0:22:56.919 but trying to do it in the middle of a 0:22:56.960 --> 0:23:02.439 financial crisis just didn't work. So as a consequence, you 0:23:02.520 --> 0:23:07.000 got this tightening of credit prices. Wholesale prices in eighteen 0:23:07.080 --> 0:23:11.280 seventy three, over the following year declined by thirty percent. 0:23:12.560 --> 0:23:16.159 The worst thing was they kept going because there was 0:23:16.200 --> 0:23:20.360 a shortage of gold and no one wanted to Everyone 0:23:20.520 --> 0:23:23.679 wanted to get out of silver, and you got a 0:23:23.760 --> 0:23:31.000 twenty year period where prices declined relentlessly for twenty years, 0:23:31.359 --> 0:23:35.400 ending up forty to fifty percent below where they started. 0:23:36.160 --> 0:23:39.520 So long term deflation until there were more goldfinds, and 0:23:39.560 --> 0:23:42.840 suddenly they're right, highest love gold exactly. 0:23:43.080 --> 0:23:47.720 Yeah, central banks didn't really have discretion at the time, 0:23:47.880 --> 0:23:51.840 so the you know, the thing that determined what central 0:23:51.840 --> 0:23:55.920 banks could do was the amount of gold they could find. Ironically, 0:23:56.160 --> 0:23:59.280 when everyone moved to gold, there was a gold drought 0:23:59.680 --> 0:24:02.480 and there there have very few discoveries of gold from 0:24:02.480 --> 0:24:10.440 eighteen seventy until eighteen ninety. And the problem with deflation 0:24:11.359 --> 0:24:16.200 to a generation used to rising prices, it sounds pretty 0:24:16.240 --> 0:24:21.040 good if we could get calling prices, but it causes 0:24:21.600 --> 0:24:25.480 terrible problems for people who borrowed money. 0:24:25.640 --> 0:24:27.280 Yeah, if you owe money, you're in trouble. 0:24:27.920 --> 0:24:32.040 Yeah, if you have a mortgage, you suddenly discover that 0:24:32.280 --> 0:24:36.440 your house is worth less, but your mortgage just continues 0:24:36.480 --> 0:24:42.480 to weigh on you. And there's nothing that damages confidence 0:24:42.560 --> 0:24:46.920 more than having this overhang of debts that keeps on rising. 0:24:47.400 --> 0:24:51.040 And absolutely horrible for farmers and landowners, right because that 0:24:51.080 --> 0:24:53.720 hasn't effect on the price of land, and most farmers 0:24:53.720 --> 0:24:56.399 will have debt of some kind. So land press is 0:24:56.480 --> 0:24:58.439 all a lot we have a lot of trouble with 0:24:58.840 --> 0:25:01.280 in that area. And then of course back to property porn, 0:25:01.600 --> 0:25:06.399 then it leads directly into the trend in the UGA 0:25:07.200 --> 0:25:11.520 for I knew you were Spratish landowners to marry rich 0:25:11.600 --> 0:25:15.080 American heiresses, which of course us all the way up 0:25:15.080 --> 0:25:15.800 to Winston. 0:25:15.560 --> 0:25:19.520 Churchile, Yeah, and downtown Abbey exactly. 0:25:32.760 --> 0:25:34.800 There's a lot of things I could pick up on here, 0:25:34.800 --> 0:25:36.520