Hosts
Derek Thompson
Derek ThompsonAbout the episode
In the late 19th century, a railroad boom fueled by easy money, speculative investment, and new technology helped kick off one of the worst financial crises in American history. Sound kind of familiar?
In today’s episode, Derek talks with author Liaquat Ahamed about his new book, 1873, and the similarities between the railroad mania of the 19th century and today’s AI boom. They discuss America’s first venture capitalists and the role of the Rothschild family, how manias inevitably create bubbles, and what the Panic of 1873 can teach us about the huge debts now financing artificial intelligence.
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In the following excerpt, Derek and Liaquat Ahamed discuss Ahamed’s book 1873 and major technological developments of the late 1800s.
Derek Thompson: Microsoft CEO Satya Nadella called your book, 1873, “the book to be read” 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 callout?
Liaquat Ahamed: Well, look, having the CEO of a $3.7 trillion company 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, afterwards.
Thompson: No, let’s go into it right now. At a high level, tell me what the lesson was that he misread.
Ahamed: I think he drew the conclusion that … he was asked, “What’s the risk of overbuilding?” And he drew the conclusion “You’ve just got to be very careful. And 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 hyper-scaler 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.
Thompson: And so just one level here, before we get into the storytelling of your book 1873. Very briefly, what is your lesson to the hyper-scalers and the neo-clouds 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?
Ahamed: 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. I’m not enough of a business strategist to figure out whether that’s a feasible option.
Thompson: I want to go through this book because not only do I think it is rife with historical analogies for the present, but it’s also just a rip-roaring tale. I want to begin in 1869 and early 1870, which is a period celebrated for three technological breakthroughs in the realm of transportation. What are these three technological breakthroughs, and why do they matter?
Ahamed: So I focus on those three as iconic moments. Essentially 1850 to 1870, we had a 20-year boom in the West. We saw investment rise by 5 percent of GDP collectively. And that may not sound like a lot, but it is gigantic. It was also accompanied by a 5 percent rise in savings rates. And in fact, an investment boom without a rise in savings rates would’ve caused interest rates to go up. In fact, we had the exact opposite. There was so much new savings that interest rates actually fell from 5 percent down to about 2.5 percent to 3 percent. And that really sustained the investment boom. And the three iconic projects were, one, the U.S. transcontinental railroad, which was completed in late ’69, the Suez Canal, which was also completed in late ’69, just a few months later. And then the somewhat less significant was the cross-India rail link. And the reason that I focus on those three is that they led to a sort of surge of interest or a surge of optimism.
Newspapers started writing articles about how you could now go across the world, go around the world in less than 80 days. And that obviously strikes a chord because a young French adventure novelist happened to read the article in the French newspaper and a light bulb went on in his head, and he said, “Wow, this has the makings of a great novel.” And so he embarked on a novel, Around the World in 80 Days. He didn’t realize then that it would make an even better movie.
This excerpt has been edited and condensed.
Host: Derek Thompson
Guest: Liaquat Ahamed
Producer: Devon Baroldi
Additional Production Support: Ben Glicksman