The 1873 Global Financial Meltdown that Cause 20 Years of Deflation and Destroyed 2 Empires

On May 9, 1873, as the Vienna Stock Exchange collapsed and thousands of speculators were wiped out in a single afternoon, young Salbert von Rothschild and two colleagues from the Schey and Goldschmidt banking families were nearly lynched on the floor of the exchange by infuriated stockjobbers and had to be rescued by police. That same evening, oblivious to the carnage a few hundred yards away, the Prince of Wales hosted a gala dinner at the Ministry of Finance, and the following night Emperor Franz Joseph served a state dinner for the assembled heirs to the royal thrones of Europe. Within months, the panic had crossed the Atlantic and destroyed Jay Cooke, the man who had single-handedly funded the Union's Civil War effort, shutting down the New York Stock Exchange for ten days.

Today's guest is Liaquat Ahamed, author of 1873: The Rothschilds, the First Great Depression, and the Making of the Modern World. We discuss how the Rothschilds built their fortune smuggling gold across the English Channel during the Napoleonic Wars and became, relative to the size of the global economy, the richest family in history. We look at how Sultan Abdülaziz of the Ottoman Empire and Khedive Ismail of Egypt borrowed their nations into oblivion and were both destroyed for it, why the demonetization of silver was the most consequential economic blunder of the nineteenth century (Milton Friedman blamed it for the worst deflation in recorded history), and how a completely fabricated conspiracy theory about the Rothschilds bribing Congress sold 400,000 copies in the American heartland. Ahamed argues that the 1873 crisis created a twenty-year redistribution of wealth from farmers, workers, and small investors to the bankers most responsible for the crash, fueling populist movements that reshaped politics on every continent.

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