Conversations with Tyler: Ahamed on 1873, Gold, and the Politics of Deflation

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When financial shocks hit, they can reshape economies in ways that outlast the panic itself. Today we're discussing Tyler Cowen's conversation with Liaquat Ahamed, the Pulitzer Prize-winning author of Lords of Finance, and his new book 1873: The Rothschilds, the First Great Depression and the Making of the Modern World. It's a fascinating conversation that moves through crises, gold, imperialism, and the political aftershocks of deflation. What really stood out to me was how Ahamed distinguishes 1873 from the Great Depression. Right, he calls 1873 "The First Great Deflation" rather than a depression. It was a slow decline that didn't destroy growth, but did damage politics and distribution for decades. As he puts it, "I don't think it went crazy, but it wasn't a happy time politically." And the political consequences were severe: populism, protectionism, imperial revival, and the retreat from liberal ideas.

Cowen really presses him on liberalism and empire, especially Britain's role in Egypt and India. Ahamed's response is direct. He argues imperialism is "definitely contrary to the spirit of liberalism," even if many liberals of the era believed they were improving the world. The nineteenth century, in his telling, was full of confidence, but also full of harm.

The discussion on growth and railroads is interesting too. Ahamed doesn't overstate the downside. He notes, "We had three railroad booms and three busts, but we ended up with a fantastic transportation system that knitted the country together." But he emphasizes the political consequences were decisive, especially in the United States. That includes the weakening of Republican dominance, the revival of the Democrats in the South, the end of Reconstruction, and a clear line to Jim Crow.

For Ahamed, the deepest lesson is that economic resilience can coexist with political fracture. What about the monetary politics? Who does he blame? Bismarck is the biggest villain in his account. Ahamed blames him for destabilizing European markets through reparations and destroying bimetallism. He argues, "If you have a group of central banks stabilizing and holding reserves in both metals, they could have stabilized gold and silver prices." And South African gold discoveries helped save the gold standard from tightening too far.

They also revisit the 1920s and German hyperinflation. Ahamed sees Stresemann and Schacht as central figures, treating Schacht as an opportunist who later adapted to Hitler's regime. He also defends Britain's return to gold in 1926, arguing a full fiat exit would likely have triggered crisis. In the final stretch, the conversation widens to the IMF, debt restructuring, Irish housing, and the Eurozone.

Ahamed is skeptical of politicized lending and concerned that the world still lacks good mechanisms for dealing with debt excesses. He ends with reflections on his Ismaili faith and interest in the 1971 collapse of Bretton Woods as a future project. He even recalls Montagu Norman's eccentric belief that "people could walk through walls."