Former World Bank economist Liaquat Ahamed earned the 2010 Pulitzer Prize for History for Lords of Finance: The Bankers Who Broke the World. His book explored the causes of the Great Depression and made a compelling argument that central bankers’ stubborn adherence to the gold standard had played a major role in the catastrophe. Now, nearly two decades later, he takes us back to the 19th century and “the First Great Depression” that started in 1873. To make the story more accessible, he centers his account on the Rothschild banking family, who played an outsize role in the world’s financial affairs throughout the century. Anyone interested in financial history, or the history of the Gilded Age, will find this a gripping tale. And Ahamed almost—not quite—succeeds in justifying the central role of the Rothschilds in what other historians call “the Panic of 1873.”
A time of upheaval and change
No different from the present era, the 19th century was a time of tumultuous change. It began with the Napoleonic Wars and the Congress of Vienna (1815), which established a balance of power that dramatically reduced the incidence of war for a century. Meanwhile, the Industrial Revolution upended life throughout the Western world. And revolutionary change broke out again and again, most famously in 1848. That upheaval, the Irish Potato Famine, and, later, the pogroms in the Russian Empire accelerated the flow of refugees to the New World, principally the United States. And all the while the people of Western society enjoyed an ever-rising standard of living as industrialization, technological innovation, and liberalizing trade bore fruit.
1873: The Rothschilds, the First Great Depression, and the Making of the Modern World by Liaquat Ahamed (2026) 365 pages ★★★★☆
The major takeaways from this book
Ahamed’s focus in this book is, of course, the Panic of 1873, its causes and consequences. He overlays this tale with an account of the outsize role of the Rothschild banking family in the bond market that then (and to a great degree now) governs the world’s financial affairs. But in a broader sense 1873 surveys Western financial history throughout the 19th century.
The First Great Depression
The Panic of 1873 was a global event, although its effects were most severe in Germany, Austria-Hungary, and the United States. Contemporaries called the six-year period that followed the Long Depression. Thousands of banks and businesses failed. Credit markets froze. In the US, one-quarter of the nation’s 364 railroads went bankrupt. And unemployment rose as high as 25 percent, equal to the peak of joblessness in the US in the 1930s.
Its roots lay in a global bond bubble
In mid-century, the 1850s and 60s, finance truly went global for the first time. Capital flowed across borders with ease in a booming international bond market. The Rothschild banking dynasty based in Vienna, Berlin, Paris, and London were at its center but invariably conservative in choosing which clients to back. Others, however, were not so prudent. And the massive amounts of cash flowing into the market financed railroads and governments alike, many of which had limited (and sometimes dubious) ability to pay bondholders. Rampant speculation and reckless borrowing grew as the years went by.
It started in Vienna
Real estate prices soared in Vienna in the 1860s, reaching heights attainable by few. Then it all went bust, as bubbles tend to do. And the bust quickly spread to Berlin, New York, Paris, and London. Individual men Ahamed profiles drove the market’s exuberance. Some committed fraud. Others were merely over-optimistic. And a few were genuinely insightful and even got out before the crash. But it was government leaders and politicians as well as industrialists and commercial leaders who borrowed their money. And, in the end, a great many proved unable to repay it. Ahamed, and the financial world at the time, fastened their attention on the doddering Turkish Empire and Egypt. In both countries, spendthrift rulers drove their nations into bankruptcy.
Ahamed blames the gold standard
Just as he does in his earlier book about the Great Depression of the 1930s, Ahamed finds the roots of the desperate years following the Panic of 1873 in a resumption of the gold standard. Previously, most nations were “bimetallic,” meaning that their currency was backed by a combination of gold and silver. But after the California Gold Rush of 1848, large quantities of gold began flowing into the market. And, meanwhile, silver production was declining. Then, new sources of gold came into the market from Australia, South Africa, and the Klondike. So, the world’s economic policymakers, one after another, rushed to drop silver and base their money solely on gold. It was a big mistake. Deflation set in with a vengeance, because the adoption of gold, despite the outpouring of the metal from these new sources, restricted how much money could be placed in circulation. And with free cash hard to come by, prices fell precipitously, causing great hardship for millions while the wealthy owners of capital assets grew ever richer.
The consequences were grave
Ahamed maintains that the crash of 1873 wasn’t just an economic event. It reshaped politics and policy for decades to come:
- Dealing a death blow to Reconstruction in the United States
- Accelerating the Ottoman Empire’s decline to its eventual death
- Sparking waves of anti-globalist populism
- Empowering a vicious strain of antisemitism directed at “Jewish finance,” anticipating that of the Nazis
Early on, the Rothschilds, always conservative, had avoided the speculative investments that led to the crash in Austria-Hungary and Germany. This insulated them from criticism sometimes heaped on other Jews in the financial industry. But after the Panic of 1873, even they became scapegoated, often highlighted as the face of world Jewry.
About the author
Liaquat Ahamed was born in Kenya, where his grandfather had emigrated to from Gujarat, India. He studied at Trinity College, Cambridge, and at Harvard University. Ahamed worked in senior roles at both the World Bank and in the banking industry. He won the 2010 Pulitzer Prize for History for his book, Lords of Finance: The Bankers Who Broke the World. 1873 is his fourth book.
Ahamed is a non-practicing Muslim. He is married and is the father of a married daughter.
For related reading
I’ve also reviewed Lords of Finance: The Bankers Who Broke the World by Liaquat Ahamed (How the gold standard caused the Great Depression).
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