Will The AI Boom End Like The Railroad Crash Of 1873? — ft. Liaquat Ahamed
October 16, 2026
AI Summary
5 min readIn the fall of 1873, Jay Cooke—the richest banker in America, the man who had financed the Union war effort and was considered a sure hand—announced he could not complete the financing of the Northern Pacific Railroad. The psychological shock was immediate. If Cooke could not raise money, no one could. Within three months, railroad construction ground to a halt. Within a year, a quarter of all U.S. railroad companies had defaulted. The ensuing depression lasted four years, and it is the closest historical analogy to today’s AI infrastructure boom, according to Pulitzer Prize-winning financial historian Liaquat Ahamed.
Ahamed’s new book, 1873: The Rothschilds, The First Great Depression, and the Making of the Modern World, traces the boom-bust cycle that began with railroads—the transformative technology of the 19th century—and ended in a global financial crisis compounded by monetary policy mistakes. In conversation on Prof G Markets, Ahamed argues that the same structural dynamics are now visible in the data center build-out: overbuilding financed by opaque debt, eroding profitability, and a collective-action problem that makes a crash nearly inevitable, even if the timing is impossible to predict.
The Railroad Boom: How a Transformative Technology Became a Bubble
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What you'll learn
- 1 (00:37) **The Railroad Boom as the Historical Analogy for AI** - Host Ed introduces the comparison between today’s AI data-center buildout and the 1873 railroad crash, citing analysts like Ben Carlson and Derek Thompson.
- 2 (03:37) **How the Railroad Boom Began: Debt and Globalization** - Ahamed explains the 20-year global boom fueled by railroads and financed primarily through the bond market.
- 3 (07:28) **The Key Players: Rothschilds vs. Jay Cooke** - Ahamed profiles the two central financiers of the era and their contrasting strategies.
- 4 (12:14) **The Crash of 1873: The Trigger and the Contagion** - The crisis began when Jay Cooke failed to complete financing for the Northern Pacific, a shock akin to OpenAI failing to raise a trillion dollars today.
- 5 (14:12) **Why the Crash Became a Depression: The Monetary Policy Mistake** - The economic downturn was transformed into a multi-year depression by a separate policy error: the shift to the gold standard.
- 6 (20:39) **The Three Core Analogies Between Railroads and AI** - Ahamed lays out the three structural parallels between the 1873 boom and today’s AI buildout.
- 7 (24:21) **The Prisoner’s Dilemma of Overbuilding** - Ahamed explains why overbuilding is inevitable, even when CEOs like Satya Nadella promise caution.
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Guests on this episode
Show Notes
Ed Elson is joined by Liaquat Ahamed to examine the railroad bubble of 1873 and why he sees parallels with today’s data center buildout. They discuss the lessons history offers, why overbuilding remains a recurring problem, the warning signs he sees in today’s AI boom, what AI executives should learn from the past, and where he thinks we are in the cycle today.
Liaquat Ahamed is a financial historian, with degrees in economics from both Harvard and Cambridge universities and over two decades of professional experience as an investment manager. His new book, 1873: The Rothschilds, the First Great Depression and the Making of the Modern World is available now.
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