Are We Repeating the Biggest Mistake of 1873?

In the run-up to the 1873 crash, the global economy was booming on the back of gold discoveries, a fivefold expansion of the bond market, and a frenzy of railway construction. Then a single war reparation payment flooded Germany with cash, ignited a speculative mania, and set off the first truly global financial crisis. Pulitzer Prize-winning author Liaquat Ahamed joins Merryn Talks Money to explain how that crash unfolded—and why the pattern of overoptimism, rising capital costs, and a sudden loss of confidence looks disturbingly familiar today.

The Bond Boom That Built the World

The 1850s and 1860s were an era of extraordinary growth. Europe had recovered from the revolutions of the 1840s, and new gold discoveries in the United States provided the monetary fuel for a global expansion. Bankers like the Rothschilds, who had made fortunes lending to governments, pivoted to financing private infrastructure—especially railroads. The bond market grew fivefold between 1850 and 1870, and much of that money came from retail investors: upper-middle-class individuals, not institutions, who were suddenly able to buy bonds through intermediaries. As Ahamed notes, "It was essentially that which provided the impetus to the growth."