The New Book That Scares Big Tech

Derek Thompson (0:00)

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The industrialist Jay Cook might be the most interesting Americans that very few Americans have heard of. In the 1860s, he was a hero. He raised money for the union by selling government bonds to the public. After the war, whose victory he financed, he used the same playbook to sell bonds to build railroads. For this, he is often considered America's first venture capitalist. For a while, Cook was the richest man in America. But in 1873, months after a stock market collapse in Vienna, Cook's empire went under, triggering the panic of 1873 and one of the worst depressions in American history. Hundreds of railroad companies went belly up, and so did the economies of the United States and much of Europe.

Some of this might sound familiar. In the last two years, the richest tech companies have blown through their free cash flow to build out AI. Now, they're tapping the bond market, raising debt like the railroad giants of old to build a machine that they, like the barons of old, believe will change the world. Today's guest, the author Liaquat Ahamed, makes the illusion explicit between the 1870s and today in his new book entitled 1873 In fact, the connection between the railroads and AI is so close that Microsoft's chief executive Satya Nadella called 1873 quote, the book to be read end quote, on the company's recent earnings call. If the tech moguls building and financing AI believe that we might be back in 1873, I thought, well, we'd better understand exactly what happened in 1872 and 1873 and the years had followed. Today, we talk to Liaquat about the bond boom of the 19th century, the mysterious Rothschild family at its heart, Jay Cooke, the mania that leads to bubbles, and the quiet power of monetary policy to fix the inevitable crises of all economic exuberance.

I'm Derek Thompson. This is Plain English.

I called your book, 1873, quote, the book to be read, end quote, on the company's recent earnings call. Tell me about your reaction to the CEO of Microsoft recommending your book to anybody in Silicon Valley who is building artificial intelligence. What did you make of this call out?

Liaquat Ahamed (4:09)

Well, look, having the CEO of a $3.5 trillion company sort of recommend your book is obviously a great boon.

I have to say, I have a feeling that he misread the lessons. And maybe we should come to that later.

SPEAKER_3 (4:30)

No, let's go into it right now. Okay.

Derek Thompson (4:32)

At a high level, tell me what the lesson was that he misread.

Liaquat Ahamed (4:34)

You know, I think he drew the conclusion that he was asked, what's the risk of overbuilding?

And he drew the conclusion is, you just got to be very careful. And if you, if you approach this very carefully, we won't have any overbuilding. I think he failed to realize that there's a collective action problem. That essentially each individual hyperscaler is trying to be careful, but the collective, the sum of their actions may not be rational and will lead to overbuilding. And part of it is the competitive pressures.

Derek Thompson (5:22)

And so just one level deeper here before we get into the storytelling of your book 1873

Very briefly, what is your lesson to the hyperscalers and the neoclouds and the labs who all have their own agency and their own motivations, but are nonetheless collectively engaged in this project of building out the most expensive private sector industrial project in history? What is your lesson to these folks on the off chance that they're listening?

Liaquat Ahamed (5:55)

I'm not sure I have a lesson for them because there's a certain inevitability. If you succumb to the competitive pressures to be first and everyone's trying to be first and not everyone can be first, I think it's inevitable that there will be overbuilding. And I'm not sure what you can do about it once you have the premise that everyone's trying to be first. You could elect to not play the game.