Why Even Isaac Newton Went Broke: History’s Greatest Economic Crashes

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[00:00:00]In the spring of 1637, a single flower bulb could buy you a house in Amsterdam.

[00:00:06]Not a small house, a canal frontront mansion. Three stories, servants quarters included. For a flower, this is the story of tulip mania, the first financial bubble in recorded history, and the lessons it teaches us about every bubble since. The tulip wasn't native to Europe. It came from the Ottoman Empire, where it was prized in the Sultan's gardens for centuries. In 1593, a Flemish botonist named Carolles Clusius planted the first tulip bulbs in Leiden in the Dutch Republic. The Dutch went insane for them, but not for ordinary tulips. The most prized were the ones with broken patterns, flames of color across the petals, like the Seer Augustus, the most famous tulip in history. What the Dutch didn't know was that these patterns were caused by a virus. the same virus that would eventually weaken the plants and end the entire industry. By the 1620s, tulip prices began to climb. By 1634, the mania had begun. Merchants stopped trading textiles and started trading tulip bulbs. Carpenters quit building houses. Bakers sold their shops.

[00:01:17]Everyone was buying tulips, not to plant, but to flip. At the peak in February 1637, a single Seer Augustus bulb sold for 10,000 gilders. The average worker in Amsterdam earned 300 gilders a year. That single bulb was worth 33 years of labor. You could buy a luxury home in Amsterdam for 10,000 gilders. Or you could buy one flower bulb. People chose the flower bulb. And then on February 5th, 1637, the music stopped. A routine auction in the town of Harlem opened with no bidders, not one. Word spread. By the end of the week, tulip prices had collapsed by 99%.

[00:02:01]Fortunes evaporated overnight. Merchants who had been millionaires on Monday were beggars by Friday. The Dutch courts refused to enforce tulip contracts, calling them gambling debts. Hundreds of families were destroyed. But here's the strange part. The Dutch Republic itself didn't collapse. The golden age continued. The Dutch East India Company kept making money. Amsterdam kept growing because tulip mania, despite its fame, was actually small. Most of the bubble was concentrated in a few hundred speculators in a handful of towns. The broader economy survived. The real damage was psychological. For the first time in history, ordinary people had watched their entire fortune disappear in a week. They had believed that prices could only go up. They had believed they were too smart to be fooled. They were wrong. The patterns established in 1637 have repeated almost exactly in every financial bubble since. The South Sea bubble, the Mississippi bubble, the 1929 stock crash, the dot bubble, the 2008 housing crash, crypto in 2017 and again in 2021. Every time the script is the same. Every time the people involved are certain it's different. Every time it isn't. Subscribe for more forgotten financial disasters. New stories everywhere. 1715. France stood on the brink of financial ruin. The death of King Louis I 14th left behind not just the awe inspiring splendor of Versailles, but also an astronomical national debt. That debt loomed like a shadow over the French economy. The treasury was drained, unable to even cover the interest on its debts, let alone the principal. Philipe Dorleon, the regent of France, was a man burdened by the weight of these financial woes.

[00:03:56]Desperation teetered on the edge of despair until a curious figure appeared with a revolutionary concept. This was John Law, a Scottish gambler with an audacious plan that promised salvation.

[00:04:09]John Law was no ordinary man. Born in Edinburgh in 1671, he was the son of a goldsmith. Yet his life was anything but conventional. At 23, he found himself embroiled in a deadly duel over the affections of a woman in London, leading to a murder conviction. He narrowly escaped the hangman's noose, fleeing to Amsterdam, where he lived on the edge, gambling his way across the continent.

[00:04:36]Law had a mind for numbers that seemed almost pternatural. He could compute odds faster than anyone, and his gambling exploits were legendary. But beneath the veneer of a gambler lay the ideals of a visionary economist. Law's bold vision was simple yet profound.

[00:04:54]Money did not need to be gold. Paper, he argued, could hold the same value if managed properly. This radical idea was unheard of in a world where gold and silver reigned supreme. But Law was convinced that paper currency offered a pathway to not only escaping debt but to economic prosperity. In 1716, he presented this daring proposal to the regent of France who driven by desperation was willing to entertain even the most unconventional solutions.

[00:05:27]Thus, the Bank General was born, the first central bank in France. It was a bold experiment, accepting gold deposits and issuing paper banknotes. To the surprise of many skeptics, within a year, these notes held their value against gold. Encouraged by this success, Law sought to expand his venture. In 1717, he launched the Mississippi Company, securing exclusive trading rights to the vast and largely unexplored territory of French Louisiana. It was a land rumored to be rich in gold and silver, though this was more myth than reality. In truth, Louisiana was a swamp-ridden landscape plagued by disease where many settlers succumbed to the harsh conditions.

[00:06:15]Nonetheless, the potential profits promised by the Mississippi Company were enough to ignite the imaginations of investors. Shares in the company soared, their value multiplying at a dizzying pace. From 500 LRAS, they climbed to 1,000, then 5,000. And by 1720, a single share could command 20,000 LRAS. Paris was swept up in a feverish frenzy. This speculative mania birthed a new term, the millionaire. Suddenly, wealth was not just for the nobility. Servants, once impoverished, found themselves wealthier than their masters. Fortunes were made overnight. A maid earning a pittance sold her shares for a life-changing sum. While a coachman who had dabbled in theft to buy shares found himself untouchable in his newfound affluence. The narrow Ru Cana where trading took place became the epicenter of this financial upheaval. Spaces there were rented at astronomical rates as feverish trading continued day and night. At the center of this whirlwind stood John Law, elevated to controller general of finances. Wielding immense power second only to the regent himself.

[00:07:31]He was showered with honors residing in a lavish palace. His wisdom sought by monarchs across Europe. For a moment, it seemed law had achieved the impossible, restructuring France's economy around the paper money that he so fervently advocated. Yet there was an inherent flaw in Law's plan. To sustain the everinccreasing value of Mississippi shares, he had to keep printing more money. This surge in currency led to inflation, creeping into the economy like an insidious disease. Prices for basic goods soared. Bread, a staple for the masses, became prohibitively expensive. The old money, the aristocracy, began to grow uneasy. They quietly converted their paper wealth back into gold, setting off a chain reaction. Like a whisper growing into a roar, panic spread. By February 1720, the bank's gold reserves were perilously low. Law, in a desperate bid to stabilize the situation, imposed draconian measures. He restricted gold payments, banned the private hoarding of precious metals, and dispatched soldiers to seize gold and silver from citizens.

[00:08:44]But these actions only fueled the fire of public unrest. The public's faith in paper money crumbled. The bank became a sight of chaos as crowds clamored to exchange their banknotes for gold.

[00:08:56]Tragically, a dozen lives were lost in the stampede. With public confidence shattered, the Mississippi company's shares plummeted. By July 1720, they began their precipitous decline, losing 90% of their value in mere months.

[00:09:12]Within a year, the company was rendered worthless. And with it, Law's dream of a paper-based economy collapsed. In the dead of night, John Law slipped away from France, leaving behind everything he had built, his family, his wealth, his legacy. His journey ended in Venice, where he died in obscurity. A far cry from the heights of power he once commanded. The aftermath of the Mississippi bubble left deep scars on the French psyche. It bred a deep-seated skepticism of paper currency that lingered for a century. While England forged ahead, developing sophisticated financial markets, France remained tethered to the tangible security of gold and silver. This hesitance arguably delayed the nation's industrial progress and sewed the seeds of financial instability, contributing to the turmoil that culminated in the French Revolution of 1789. What makes the Mississippi bubble particularly intriguing is that it epitomized many of the pitfalls that continue to haunt financial markets.

[00:10:17]Asset prices detached from reality, unchecked money creation, insider profitering, and mass hysteria. All hallmarks of speculative bubbles were present in 1720. Yet, history repeats itself. The South Sea bubble in England, the Wall Street crash of 1929, the dotcom bust, the 2008 financial crisis, and even the recent cryptocurrency bubbles, all bear striking similarities.

[00:10:46]In his final days, John Law penned a reflection, acknowledging his mistakes, but insisting they were born of folly rather than malice. His words serve as a poignant reminder that even the most well-intentioned financial innovations can spiral into disaster. It's a lesson that resonates through the annals of economic history, urging caution in the face of seemingly limitless opportunity.

[00:11:12]Join us as we continue to unravel the stories of financial triumphs and tribulations, bringing to light the timeless lessons that history offers.

[00:11:21]Subscribe for more insights into the world of finance, past and present, with new episodes every Monday and Friday. In 1946, Hungary printed a bank note worth 100 quintilion pango. That's a one followed by 20 zeros. A single bank note with a number so large that no calculator made in 1946 could even display it. It was not enough to buy a loaf of bread. This is the story of the worst hyperinflation in human history and the warnings it gives us about every modern central bank. In 1944, Hungary was on the losing side of World War II.

[00:11:58]When the war ended, the country was occupied by the Soviet Red Army. The economy was destroyed. 40% of the nation's wealth had been physically blown up. 80% of Budapest was in ruins.

[00:12:11]The Soviet occupiers demanded massive reparations. The Hungarian government needed to rebuild, but had no tax base, no industry, and no foreign loans. So, they did what every desperate government does. They started printing money. In July 1945, Hungary's largest bank note was 1,000 pingo. By December 1945, the largest bank note was 10,000 pingo, a 10-fold increase in 5 months. By March 1946, it was 10 million pango. By May 1946, 1 billion pango. By June 1946, 100 billion pango. By July 1946, 100 quintilion pango. The prices were doubling every 15 hours. To paint this picture, if you held a 100 pango note in 1945, by mid 1946, you needed 1.4 4 non-illion of them to match the original purchasing power. That's a 1.4 followed by 30 zeros. Workers were paid three times per day so they could rush to spend their wages before prices doubled again. Restaurants stopped printing menus. The prices changed faster than they could write them. Patrons just paid the current rate. People burned banknotes for heat. They were genuinely cheaper than firewood. Children played with stacks of money in the streets.

[00:13:41]Houses had 100 million pango notes used as wallpaper. The Budapest stock exchange suspended trading. Not because of crisis, but because the printers couldn't print quotations fast enough.

[00:13:54]One particularly tragic story. A man traveled to a restaurant with two suitcases full of cash to pay for a single meal. He left the suitcases outside while he ate. When he came back, the suitcases had been stolen. But the thieves had dumped the cash on the sidewalk. It wasn't worth carrying. By August 1946, Hungary printed the largest denomination bank note in human history.

[00:14:21]One seextilian pango. That's a one followed by 21 zeros. It was worth less than a US penny. The government had a special unit called the Pango Calculation Office whose only job was to come up with names for the new denominations. They invented words like adopeno and milango and bango because they had run out of normal words for these numbers. The total currency in circulation reached 47 octillian pango.

[00:14:50]In US dollars, the entire money supply of Hungary was worth approximately$1 US.

[00:14:57]On August 1st, 1946, the Hungarian government did the only thing they could. They abolished the peno entirely.

[00:15:05]They introduced a new currency, the foreign. The exchange rate was 400 octillian pingo for one for rent.

[00:15:13]400,000,000,000,000,000,000,000,000 to one. Overnight, the entire savings of an entire nation became worth less than the paper they were printed on. Pensions evaporated. Life savings disappeared.

[00:15:30]Multigenerational wealth gone in 12 months. The Hungarian hyperinflation of 1946 was studied intensely by economists in the decades that followed. They identified the exact mechanism, and it's terrifyingly simple. When a government cannot pay its bills with taxes and cannot borrow, it has only one option, print money. When it prints money, prices rise. When prices rise, the government's expenses also rise. So, the government prints more money, which causes more inflation, which causes more printing. It's a death spiral. Once you start, you cannot stop without total economic collapse. The Hungarian Pango went from stable currency to worthless paper in 12 months. The VHimar Republic took 18 months. Zimbabwe took 9 years.

[00:16:22]Venezuela is doing it right now in slow motion. Every modern central bank is conducting an experiment that has never been done before. Since 2008, the US Federal Reserve has expanded its balance sheet by 10 times. The European Central Bank by five times. the Bank of Japan by eight times. Trillions of dollars, euros, and yen created out of nothing injected into the global economy. Modern economists assure us this is different, that developed economies cannot experience hyperinflation, that their currencies are reserve currencies protected by the global financial system. The same things were said about the Hungarian Pango in 1944.

[00:17:10]The same things were said about the VHimar Reich's Mark in 1921. The same things have been said before every hyperinflation in history. Without exception, a boy in Budapest in 1946 used Pango banknotes to fly kites. Each kite was worth in face value more than the entire fortune his grandfather had spent a lifetime accumulating. The boy did not understand what was happening.

[00:17:36]The adults around him did not understand what was happening. The government did not understand what was happening. That in the end is the lesson of every hyperinflation.

[00:17:48]The math is simple. The signs are clear.

[00:17:51]The history is documented in painful detail. And yet somehow we always think it can't happen to us until it does.

[00:18:00]Subscribe for more forgotten financial disasters. New episodes every Monday, Wednesday, and Friday. In >> 1545, Spain discovered the largest silver deposit in human history. It should have made them the richest nation on Earth forever. Instead, within 100 years, Spain was the most bankrupt empire in Europe. And the silver they extracted destroyed not just their economy, but the entire monetary system of Europe. This is the story of how unlimited wealth can ruin a civilization and why we're making the same mistake right now. In April 1545, an indigenous Andian llama herder named Diego Halpa was chasing a runaway llama up a desolate mountain in what is today Bolivia. To stop himself from falling, he grabbed a small bush. The bush came out of the ground, and underneath it was something that would change the history of the world. pure silver ore sticking out of the rocks. He had stumbled onto Cher Rico, the rich hill, which would turn out to be the single largest silver deposit ever discovered. The Spanish, who had conquered the Inca Empire just 12 years earlier, immediately took control. Within 5 years, the city of Potocei had grown from nothing to a population of 200,000, making it one of the largest cities in the world, larger than Paris, larger than London, all to extract silver. For the next 150 years, Spanish gallions carried silver across the Atlantic in convoys of dozens of ships at a time.

[00:19:35]The annual treasure fleet was the largest concentration of wealth ever moved in human history. By 1600, Spain had imported over 300 tons of silver. By 1650, over 16,000 tons. By 1800, more than 50,000 tons. To put this in perspective, Spain pumped more silver into the European economy in two centuries than had existed in all of Europe for the previous thousand years.

[00:20:05]The Spanish King Philip II became by far the richest man who had ever lived. His income exceeded that of all other European monarchs combined. He should have been invincible. Instead, he went bankrupt four times in his lifetime.

[00:20:20]Philip II declared sovereign default in 1557, 1560, 1575, and 1596.

[00:20:28]How does the man with infinite money go broke? The answer would not be understood for another 300 years. But the principle was simple. When you flood any market with an infinite supply of something, that something becomes worthless. Spain was flooding Europe with silver. And the price of silver, meaning the value of money itself, was collapsing. A loaf of bread in Spain that cost one Moravi in 1500 cost eight Moraves by 1600. wine, meat, clothing, housing, everything had inflated 500 to 800% in a single century. The economists would later call this the price revolution. At the time, the Spanish just called it the misery. The flood of silver did something even worse than inflation. It destroyed Spain's economy from the inside. Why bother making things when you could just buy them with silver? Spanish industry collapsed.

[00:21:30]Spanish farms were abandoned. Spanish craftsmen went out of business. Spain became dependent on imports from England, France, and the Netherlands, countries that didn't have silver mines, but did have functioning economies.

[00:21:44]Meanwhile, the indigenous workers in Potosi were dying. The Spanish meter system forced thousands of native men to work in the mines under conditions so brutal that average life expectancy was 3 years. By 1700, an estimated 8 million people had died at potsy. The silver enriched no one. It destroyed Spain's economy, destroyed Europe's monetary system, and destroyed millions of human lives. It was the largest negative sum economic event in history. By 1700, Spain was the poorest major empire in Europe. By 1800, it had lost most of its colonies. By 1900, it was a backward agrarian nation watching from the sidelines. As England, France, and Germany industrialized, the silver had run out. Or rather, the world had figured out that endless silver was worthless. Europe moved on to the gold standard. Spain was left holding mountains of a metal nobody wanted anymore. But here's what should disturb you. The principle that destroyed Spain, flood the market with money until the money becomes worthless, has been repeated in every major economic disaster since. The VHimar Republic flooded Germany with papermarks in 1923.

[00:23:06]Result: hyperinflation, collapse.

[00:23:09]Zimbabwe flooded its economy with new currency in 2008.

[00:23:14]Result: 100 trillion dollar bills collapse. The United States Federal Reserve has expanded its balance sheet from $800 billion in 2008 to over 8 trillion today. A 10-fold increase in just 15 years. Every developed nation is right now doing exactly what Spain did, flooding the market with money.

[00:23:37]convinced that this time somehow it will be different. It won't be. Diego Halpa's discovery in 1545 should have been the luckiest moment in Spanish history.

[00:23:49]Instead, it was the beginning of their decline. Because here's the law that nobody knew in 1545 that Spain learned the hard way over 200 years and that we are about to learn again. Wealth that comes too easy isn't wealth at all.

[00:24:06]Subscribe for more forgotten financial disasters.

[00:24:10]New episodes every Monday, Wednesday, and Friday. In 1881, the Ottoman Empire, once the most powerful empire on Earth, had to admit it could no longer pay its debts. The solution was unprecedented in world history. European bankers literally took over Ottoman tax collection. They established an organization inside the Ottoman government that controlled 30% of all imperial revenue. It was called the Dunu Umumier, the public debt administration, and it would help destroy what was left of the empire. This is a story almost nobody in the English-speaking world knows, but its lessons apply directly to dozens of nations today. For 300 years after the conquest of Constantinople in 1453, the Ottoman Empire was one of the wealthiest empires in the world. It controlled the Eastern Mediterranean, North Africa, the Middle East, and the Balkans. But by the 1850s, the empire was in trouble. Industrial Europe was leaving the Ottomans behind technologically. The empire's tax system was inefficient. Its army needed modernization. Its bureaucracy was corrupt. In 1854, during the Crimean War, the Ottoman government did something no Ottoman sultan had ever done before. It borrowed money from European banks. The first loan was modest, £3 million, mostly to finance the war against Russia. The Ottomans had every intention of paying it back. Once the Ottoman government had borrowed once, it could not stop. There was always another war to fight, another reform to implement, another modernization project to fund, another palace to build for the Sultan. Between 1854 and 1875, the Ottomans took out 16 separate loans from European banks. Each loan came with conditions. High interest rates, short repayment terms, and brokerage fees that often consumed 30% of the principle before it even reached Istanbul. By 1875, the Ottoman government owed European creditors over 200 million pounds, roughly half the total foreign debt of every nation in the world combined. The interest payments alone consumed more than 50% of all Ottoman tax revenue. The empire was not just borrowing to fund new projects.

[00:26:39]It was borrowing to pay the interest on previous loans. On October 6th, 1875, the Ottoman government did the only thing it could. It announced that it could pay only half of the interest owed on its foreign debts. The other half would be paid in new bonds. Bonds that were widely understood to be worthless.

[00:26:59]European markets crashed. Banks failed across the continent. The default of 1875 helped trigger the long depression that would dominate the global economy for the next 23 years. But the Ottoman default also created a unique problem.

[00:27:14]European bond holders had legally purchased Ottoman debt, expecting the full faith and credit of the empire. Now they had been stiffed. So they did something unprecedented. They organized.

[00:27:27]The European powers, Britain, France, Germany, Austria, Hungary, Italy, and the Netherlands sent representatives to Istanbul. They presented the Sultan with an ultimatum. Either the Ottomans would allow European management of Ottoman finances directly or the European powers would seize Ottoman territory as collateral. The Sultan had no choice. On December 20th, 1881, the Sultan signed the decree of Muharam, establishing the Duun Umier, the Ottoman public debt administration. It was the most extraordinary institution in the history of sovereign debt. A board of European commissioners appointed by the foreign creditors was given direct control over Ottoman tax collection in six major categories: salt, tobacco, silk, fish, alcohol, and stamps. The Dunua Umumia had its own employees, its own offices, its own enforcement officers. It collected taxes, managed monopolies, and transferred revenues directly to European creditors, completely bypassing the Ottoman Treasury. At its peak, it employed more than 9,000 people in the Ottoman Empire. It controlled 30% of all imperial revenue. It was, in every meaningful sense, a parallel state within the empire. The duunu um succeeded in repaying European creditors. From 1881 to 1914, Ottoman debt was reduced from 200 million to 159 million. European investors got their money eventually, but the cost to the Ottoman Empire was catastrophic. The empire could not invest in its own modernization because 30% of revenue went to foreign creditors. Schools, railways, ports, factories, all were underfunded. The Duyunu Umuier undermined Ottoman sovereignty.

[00:29:27]European powers used their financial control as leverage in every diplomatic crisis. The empire became in practice a financial colony of Europe. Most of all, it destroyed Ottoman confidence. The empire that had once besieged Vienna and ruled three continents was now reduced to having European clerks count its tobacco harvest. When World War I broke out in 1914, the Ottoman Empire joined the central powers, Germany and Austria Hungary. One of the first acts of the Ottoman government was to dissolve the duunu um it was too late. The empire had been hollowed out after losing the war in 1918. The empire was dismembered by the victorious allies. Most of its territory was carved up into European protectorates and new states. The Ottoman Empire officially ended in 1922.

[00:30:22]The Republic of Turkey was founded in 1923. The first major economic decision of the new Turkish Republic was to honor the remaining Ottoman debts to European creditors. They paid them off on schedule until 1954. The total cost of European loans to the Ottoman Empire between 1854 and 1881, 16 loans. The total cost of repaying those loans, including all interest, more than 100 years of financial subjugation. The Duyonu Umuia should have been a unique historical curiosity.

[00:30:58]But the model it created, foreign management of national finances by international creditors, became the template for sovereign debt crisis ever after. When Argentina defaulted in 2001, the IMF imposed similar controls. When Greece nearly defaulted in 2012, the European Central Bank, IMF, and European Commission, the Troa, took over Greek fiscal policy in everything but name.

[00:31:26]When Sri Lanka defaulted in 2022, foreign lenders imposed similar conditions. The Dunu Umumia is alive and well today. It just has different names.

[00:31:36]The IMF, the World Bank, the European Stability Mechanism. The pattern is identical. A government borrows from foreign creditors. It cannot pay. The creditors take control of national finances. The country pays for decades.

[00:31:54]There's a tradition that survives in Turkey to this day. On December 20th, the anniversary of the decree of Muharam, financial historians gather to discuss the duunu um the discussion is always the same. How could a great empire allow this to happen? How could sovereign rulers sign away their financial independence? The answer, of course, is the answer to every sovereign debt crisis in history. They didn't think they had a choice. They never do until they don't. Subscribe for more forgotten financial disasters. New episodes every Monday, Wednesday, and Friday. The Great Depression of 1929 is etched into our collective memory as a decadel long catastrophe. Yet, the long depression of 1873, which stretched over 23 years, has faded into obscurity. It was a time when the global economy stumbled and gasped for air while banks crumbled, factories shuttered, and countless people faced hunger. This is the tale of a financial cataclysm that dismantled one world, paving the way for another. In the 1860s, the world was undergoing a seismic transformation. The American Civil War had drawn to a close and Germany was newly unified. The Suez Canal had opened, shrinking the globe.

[00:33:16]While transatlantic telegraph cables spanned oceans, connecting continents like never before. Railroads, the iron arteries of progress, were burgeoning everywhere. Between 1865 and 1873, America laid down 35,000 m of new tracks, effectively doubling its rail network in just 8 years. Germany added 12,000 m and Russia 8,000. Railroads were not merely a means of transport, but a symbol of modernity and conquest.

[00:33:49]Investors, enticed by the promise of progress, funneled billions into railroad bonds. Towns vied for rail lines, and politicians succumb to the lure of bribes for rail contracts. This unprecedented infrastructure boom was destined for disaster. The long depression's genesis was traced to Vienna, Austria. By the early 1870s, Vienna had become the financial nexus of Central Europe. With Austrian banks heavily invested in railroads, real estate, and government bonds, the 1873 Vienna World's Fair, envisioned as a showcase of Austrohungarian prosperity, instead became a harbinger of doom. On May 9th, 1873, now etched in history as Black Friday, the Vienna Stock Exchange imploded. A domino effect ensued as banks toppled and railroad bonds lost their value. By week's end, numerous Austrian banks were bankrupt and the World's Fair stood as a grim monument to economic ruin. Foreign visitors arrived to find a city engulfed in panic. The contagion of crisis rapidly spread from Vienna to Berlin and within days to Paris, London, and New York. In America, the collapse of Jay Cook and company on September 18th, 1873, served as the catalyst. Jay Cook, a financial titan, had bankrolled the Union Civil War victory, and his name was synonymous with trust in railroad investments. When his firm fell, unable to sell bonds for the Northern Pacific Railway, panic ensued among American investors. The New York Stock Exchange shuttered for 10 days and the country witnessed its first bank runs as depositors scrambled to retrieve their funds. The panic of 1873 was underway. Unlike most financial crises that resolve within a few years, the panic of 1873 was a protracted ordeal. In the United States, industrial output plummeted by 30%. Wages fell by a quarter and unemployment soared to 14%, persisting for years. Of the nation's 364 railroads, 89 went bankrupt and 18,000 businesses failed in the first 3 years alone. Europe fared no better with Germany experiencing its inaugural industrial recession and Britain entering what was then termed the Great Depression. The crisis lingered, casting a long shadow over the global economy for more than two decades. The prolonged nature of the long depression can be attributed to three primary factors.

[00:36:33]First, there was rampant overinvestment in railroads. Far too many lines had been constructed leading to overcapacity and insufficient revenue to sustain them. It would take years for population growth and economic expansion to justify this infrastructure. Second, deflation compounded the crisis. From 1873 to 1896, prices in the United States fell by approximately 40%. While this might seem advantageous, it spelled disaster for debtors. Farmers and factory owners alike found themselves squeezed as their products fetched lower prices each year, while debts and wage demands remained unchanged. Deflation transferred wealth from debtors to creditors, exacerbating the economic malaise. Third, monetary contraction played a crucial role. The United States returned to the gold standard in 1879, mirrored by Germany constricted the money supply at a time when liquidity was desperately needed.

[00:37:34]The long depression was, in hindsight, a self-inflicted wound born of poor investment, tight money, and falling prices. The consequences of the long depression were profound and farreaching. It galvanized the labor movement as workers belleaguered by years of declining wages formed unions on an unprecedented scale. The American Federation of Labor emerged in 1886 and the hay market riot underscored the growing unrest. In Europe, socialism gained traction as a political force.

[00:38:07]The era also birthed the progressive era as reformers appalled by guilded age corruption and inequality demanded government intervention. This period saw the rise of antitrust laws, banking regulations, and income taxes all in response to the long depression.

[00:38:26]Moreover, it spurred European imperialism as nations desperate for new markets and resources embarked on the scramble for Africa. During the long depression, most of Africa was colonized. Finally, modern anti-semitism began to take root as economically strained populations scapegoed financiers, many of whom were Jewish.

[00:38:49]The long depression finally drew to a close around 1896. New gold discoveries in South Africa and Alaska bolstered the global money supply while technological advancements in industries such as electricity, automobiles, and telephones spurred economic growth. By 1900, the world had largely moved on. The Bell Epoch, the Edwwardian era, and the Gilded Age are remembered as times of prosperity following two decades of stagnation. Despite its significance, the long depression of 1873 remains an often overlooked chapter in economic history. It offers a vital lesson.

[00:39:30]Financial crises do not always resolve swiftly. They can linger, slowly eroding wealth and confidence. Japan since 1990 has grappled with its own long depression marked by prolonged economic stagnation. Europe too has experienced sluggish growth since the financial crisis of 2008 with Italian GDP per capita remaining stagnant since 1999.

[00:39:57]These are not crashes but slow strangulations much like the long depression. To conclude, consider the words of a Pittsburgh worker penned in his journal in 1885, 12 years into the long depression. On December 31st, he wrote, "Another year of small wages and slow work. The factory where my father worked is closed. The neighborhood emptier every year. We are told prosperity is coming.

[00:40:25]We have been told this for 12 years.

[00:40:28]Perhaps next year, perhaps the year after." He continued this refrain for another decade. When prosperity finally arrived, it was too late for him. This is the true lesson of the long depression. Sometimes economic crises don't crash. They quietly bury you year by year. And by the time you realize it, 20 years have slipped over 1720. A man whose genius once unlocked the secrets of the cosmos, faced a more earthly humiliation. Sir Isaac Newton, the paragon of scientific thought, succumbed to the irrational exuberance of his time, losing a fortune in a tale of greed and folly. This is the story of the South Sea bubble. As England staggered under the weight of war debt, financial salvation seemed distant. The nation needed a miracle, or at least a miracle worker. Enter Robert Harley, the Earl of Oxford, a man with a plan to restore England's financial standing.

[00:41:28]Harley along with the shrewd financier John Blunt, engineered the birth of the South Sea Company. This company was not just another trading enterprise. It was a grandiose scheme to consolidate and manage the national debt by promising a monopoly on trade in the lucrative South Seas. It was a vision of prosperity, but one steeped in deception. For 9 years, the South Sea Company spun a web of promises, weaving tales of untold wealth to be found in the distant South American lands. The scheme drew inspiration from the Mississippi Company across the channel in France, where fortunes, albeit briefly, were made. But unlike the Mississippi Venture, the South Sea Company was built on little more than imagination and audacity.

[00:42:15]Amidst a climate ripe for exploitation, the company transformed into a welloiled bribery machine. Parliament was wooed.

[00:42:24]The king's mistresses were courted with stock shares, and soon shares were soaring. The price of stock skyrocketed, reaching the unimaginable heights of 1,000.

[00:42:37]Euphoria gripped the nation, transforming the royal exchange and coffee houses into epicenters of speculation. Everyone from the aristocracy to the street hawker was caught in the feverish pursuit of wealth. The mania extended beyond the South Sea Company. A frenzy of bubble companies emerged, each more absurd than the last. Shell companies with grandiose prospectuses promised to revolutionize everything from perpetual motion to the transformation of base metals into gold.

[00:43:11]As these ventures flourished, London streets buzzed with the chatter of fortune seekers. In a bid to control the chaos, Parliament enacted the Bubble Act, restricting the creation of new joint stock companies. It was a classic case of too little, too late. The South Sea Company's stock began its precipitous fall, tumbling from 1,000 to a mere 90. Banks faltered and despair swept through the nation. The crash left a trail of ruin with some even driven to the depths of despair. their lives shattered by the collapse. Amidst this wreckage, Parliament launched an investigation. The inquiry exposed the sorted depths of corruption and deceit.

[00:43:54]John Blunt, once hailed as a financial savant, was disgraced, his legacy tarnished by the very minations that had built his fortune. For Isaac Newton, the drama unfolded with personal tragedy.

[00:44:08]Initially prudent, he sold his South Sea shares with a modest profit. Yet swept by the mania that gripped the nation, he re-entered the market at its peak. When the bubble burst, Newton faced a staggering loss of 20,000, equivalent to nearly 3 million in today's terms. He famously lamented, "I can calculate the motions of the heavenly bodies, but not the madness of men." The South Sea bubble left indelible marks on history. It birthed the first whispers of modern financial regulation. A precursor to the systems that would eventually govern markets worldwide. Charles McKay's seinal work, extraordinary popular delusions and the madness of crowds, would later chronicle the folly, serving as a cautionary tale for future generations. The template of the bubble found echoes throughout history. in the crash of 1929, the dotcom bubble of 2000, the financial crisis of 2008, and even the speculative frenzy surrounding cryptocurrencies.

[00:45:16]Today, the story of the South Sea bubble serves as a timeless reminder of human folly. We invite you to delve deeper into such captivating narratives by subscribing to our channel, where history's lessons are brought to life.

[00:45:30]1775, the Continental Congress made a bold move, printing the first US paper money. By 1781, it had become so worthless that soldiers resorted to using it as toilet paper. That's how the phrase not worth a continental was born.

[00:45:46]This is the story of how America's first currency nearly destroyed the nation before it even had a chance to be founded. April 1775 marks the beginning of the American Revolution at Lexington and conquered. As musket fire echoed across the colonies, the Continental Congress in Philadelphia faced a daunting challenge. Funding a war without a federal government, without tax revenue, without a treasury, and without banks. Each colony operated with its own currency, leaving Congress with no authority to levy taxes. In June 1775, desperate to support the revolutionary cause, they voted to print $2 million in paper money. the continental currency.

[00:46:30]Unlike the stable currencies of Europe, these bills had no gold or silver backing. They relied solely on promises and the fervor of patriotism. But war is an expensive business. By 1776, the costs were spiraling beyond expectations. The printing presses worked overtime, turnurning out 6 million more dollars. In 1777, another 10 million followed. By 1778, a staggering $63 million were printed. And in 1779, the number ballooned to an unimaginable 140 million. In just 4 years, the total amount of continental currency grew 70fold. Meanwhile, the British Navy blockaded American ports, occupying major cities like New York, Philadelphia, and Charleston. The economy was suffocating. Trade had collapsed and production was at a standstill. By 1779, the value of a continental dollar had plummeted to just 140th of a Spanish dollar. What once bought you a pair of shoes for one continental dollar in 1775 now cost a staggering $1,000 in 1781. A loaf of bread that was once a mere 3 pence now demanded 40 continental dollars.

[00:47:50]Farmers, merchants, and foreign traders rejected the paper money outright. In Philadelphia, a man used the worthless bills to paper his walls. In New York, a barber wallpapered his shop with them.

[00:48:03]Soldiers gambled and used them as toilet paper. Not worth a continental had entered the lexicon of American English as a bitter truth. The collapse of the currency had dire consequences for the army, especially during the bitter winter of 1777 to 1778 at Valley Forge.

[00:48:23]The soldiers faced a harsh reality. No clothing, no boots, no food, no medicine. With farmers refusing to accept the devalued currency and demanding British pounds instead, the army was on the brink of starvation.

[00:48:38]Approximately 2,500 soldiers perished.

[00:48:41]not on the battlefield, but from exposure, hunger, and disease. General Washington lamented, "A wagon load of money will scarcely purchase a wagon load of provisions." The war was being lost, not in battle, but in the marketplace. By 1781, the continental currency was utterly worthless. Congress ceased its printing, and bills were redeemed at a humiliating rate of 40 to1. Americans received a pittance just 2.5 cents on the dollar. It was the first sovereign default in US history.

[00:49:16]Patriotic Americans who had accepted the currency were financially ruined and soldiers had nothing to show for years of service. The fledgling nation emerged into the world burdened with debt, a collapsed currency, and a populace that had lost faith in paper money. But there was a saving grace, the intervention of France. In 1778, France entered the war.

[00:49:41]And it was French loans in gold, not paper, that funded the final 3 years of conflict. Without French gold, the Continental Army would have crumbled, and the United States might never have existed. The experience left an indelible mark on the founding fathers.

[00:49:59]Paper money without backing was a recipe for disaster. This hard one lesson was etched into the 1787 Constitution.

[00:50:07]Article 1, Section 8 empowered Congress to coin money, restricting it to physical metal coins. Article 1, Section 10 prohibited states from issuing paper money. These measures were a direct response to the continental currency catastrophe. The founders believed they had constructed a system immune to such a blunder. Yet, history had other plans.

[00:50:31]Fast forward to 1862.

[00:50:34]The government issued the first paper money since the Constitution known as Greenbacks. By 1913, the Federal Reserve was established, empowered to issue paper money backed only by faith. In 1971, President Nixon severed the dollar's link to gold entirely. The US dollar became a pure fiat currency, exactly what the founders had warned against. The very mechanism that had destroyed the continental currency now formed the basis of the modern dollar.

[00:51:04]Since 2008, the Federal Reserve has expanded its balance sheet tenfold.

[00:51:10]Trillions of dollars have been created out of thin air, echoing the actions of the Continental Congress in the 1770s.

[00:51:18]The justifications may differ. The amounts are larger and technology more sophisticated, but the fundamental principle remains unchanged.

[00:51:28]Print money, hope inflation doesn't appear, deny it when it does, and blame it on external factors. Every paper currency in history has eventually met its demise. The continental dollar in 6 years, the French asignat in seven, the German paperiermark in 9, the Hungarian pango in 12, the pure fiat dollar has persisted for 54 years. The question is not if it will collapse, but when. A poignant entry from a Philadelphia merchants journal on March 18th, 1781 captures the mood of the time. He gave his 40,000 continental dollars to his children to play with. His three-year-old transforming them into paper boats that sank in puddles, much like his fortune had sunk in the war.

[00:52:18]Today, the continental dollar is a forgotten relic, but its lesson endures.

[00:52:23]Money holds value only as long as people believe in it. When that belief fades, so does the currency. Subscribe for more insights into forgotten financial disasters. And remember, the past is never as far behind us as we think. In the year 1720, a man whose genius once unlocked the secrets of the cosmos faced a more earthly humiliation. Sir Isaac Newton, the paragon of scientific thought, succumbed to the irrational exuberance of his time. Losing a fortune in a tale of greed and folly. This is the story of the South Sea bubble. As England staggered under the weight of war debt, financial salvation seemed distant. The nation needed a miracle, or at least a miracle worker. Enter Robert Harley, the Earl of Oxford, a man with a plan to restore England's financial standing. Harley along with the shrewd financier John Blunt engineered the birth of the South Sea Company. This company was not just another trading enterprise. It was a grandiose scheme to consolidate and manage the national debt. By promising a monopoly on trade in the lucrative South Seas, it was a vision of prosperity, but one steeped in deception. For 9 years, the South Sea Company spun a web of promises, weaving tales of untold wealth to be found in the distant South American lands. The scheme drew inspiration from the Mississippi Company across the channel in France, where fortunes, albeit briefly, were made. But unlike the Mississippi Venture, the South Sea Company was built on little more than imagination and audacity. Amidst a climate ripe for exploitation, the company transformed into a welloiled bribery machine. Parliament was wooed.

[00:54:12]The king's mistresses were courted with stock shares. And soon shares were soaring. The price of stock skyrocketed, reaching the unimaginable heights of 1,000.

[00:54:25]Euphoria gripped the nation, transforming the Royal Exchange and coffee houses into epicenters of speculation. Everyone from the aristocracy to the street hawker was caught in the feverish pursuit of wealth. The mania extended beyond the South Sea Company. A frenzy of bubble companies emerged, each more absurd than the last. Shell companies with grandiose prospectuses promised to revolutionize everything from perpetual motion to the transformation of base metals into gold.

[00:55:00]As these ventures flourished, London streets buzzed with the chatter of fortune seekers. In a bid to control the chaos, Parliament enacted the bubble act, restricting the creation of new joint stock companies. It was a classic case of too little, too late. The South Sea Company's stock began its precipitous fall, tumbling from 1,000 to a mere 90. Banks faltered and despair swept through the nation. The crash left a trail of ruin with some even driven to the depths of despair. Their lives shattered by the collapse. Amidst this wreckage, Parliament launched an investigation. The inquiry exposed the sorted depths of corruption and deceit.

[00:55:42]John Blunt, once hailed as a financial savant, was disgraced, his legacy tarnished by the very minations that had built his fortune. For Isaac Newton, the drama unfolded with personal tragedy.

[00:55:56]Initially prudent, he sold his South Sea shares with a modest profit. Yet, swept by the mania that gripped the nation, he re-entered the market at its peak. When the bubble burst, Newton faced a staggering loss of 20,000, equivalent to nearly 3 million in today's terms. He famously lamented, "I can calculate the motions of the heavenly bodies, but not the madness of men." The South Sea bubble left indelible marks on history. It birthed the first whispers of modern financial regulation. A precursor to the systems that would eventually govern markets worldwide. Charles McKay's seinal work, extraordinary popular delusions and the madness of crowds, would later chronicle the folly, serving as a cautionary tale for future generations. The template of the bubble found echoes throughout history. in the crash of 1929, the dotcom bubble of 2000, the financial crisis of 2008, and even the speculative frenzy surrounding cryptocurrencies.

[00:57:04]Today, the story of the South Sea bubble serves as a timeless reminder of human folly. We invite you to delve deeper into such captivating narratives by subscribing to our channel, where history's lessons are brought to life.

[00:57:18]In 1881, the Ottoman Empire, once the most powerful empire on Earth, had to admit it could no longer pay its debts.

[00:57:28]The solution was unprecedented in world history. European bankers literally took over Ottoman tax collection. They established an organization inside the Ottoman government that controlled 30% of all imperial revenue. It was called the Dunu Umumier, the Public Debt Administration. and it would help destroy what was left of the empire.

[00:57:51]This is a story almost nobody in the English-speaking world knows, but its lessons apply directly to dozens of nations today. For 300 years after the conquest of Constantinople in 1453, the Ottoman Empire was one of the wealthiest empires in the world. It controlled the Eastern Mediterranean, North Africa, the Middle East, and the Balkans. But by the 1850s, the empire was in trouble. Industrial Europe was leaving the Ottomans behind technologically. The empire's tax system was inefficient. Its army needed modernization. Its bureaucracy was corrupt. In 1854, during the Crimean War, the Ottoman government did something no Ottoman sultan had ever done before. It borrowed money from European banks. The first loan was modest, £3 million, mostly to finance the war against Russia. The Ottomans had every intention of paying it back. Once the Ottoman government had borrowed once, it could not stop. There was always another war to fight, another reform to implement, another modernization project to fund, another palace to build for the Sultan. Between 1854 and 1875, the Ottomans took out 16 separate loans from European banks. Each loan came with conditions. High interest rates, short repayment terms, and brokerage fees that often consumed 30% of the principle before it even reached Istanbul. By 1875, the Ottoman government owed European creditors over 200 million pounds, roughly half the total foreign debt of every nation in the world combined. The interest payments alone consumed more than 50% of all Ottoman tax revenue. The empire was not just borrowing to fund new projects.

[00:59:44]It was borrowing to pay the interest on previous loans. On October 6th, 1875, the Ottoman government did the only thing it could. It announced that it could pay only half of the interest owed on its foreign debts. The other half would be paid in new bonds. Bonds that were widely understood to be worthless.

[01:00:04]European markets crashed. Banks failed across the continent. The default of 1875 helped trigger the long depression that would dominate the global economy for the next 23 years. But the Ottoman default also created a unique problem.

[01:00:20]European bond holders had legally purchased Ottoman debt, expecting the full faith and credit of the empire. Now they had been stiffed. So they did something unprecedented. They organized.

[01:00:33]The European powers, Britain, France, Germany, Austria, Hungary, Italy, and the Netherlands sent representatives to Istanbul. They presented the Sultan with an ultimatum. Either the Ottomans would allow European management of Ottoman finances directly or the European powers would seize Ottoman territory as collateral. The Sultan had no choice. On December 20th, 1881, the Sultan signed the decree of Muharam, establishing the Dyunu Umumier, the Ottoman public debt administration. It was the most extraordinary institution in the history of sovereign debt. A board of European commissioners appointed by the foreign creditors was given direct control over Ottoman tax collection in six major categories: salt, tobacco, silk, fish, alcohol, and stamps. The Dunua Umumia had its own employees, its own offices, its own enforcement officers. It collected taxes, managed monopolies, and transferred revenues directly to European creditors, completely bypassing the Ottoman Treasury. At its peak, it employed more than 9,000 people in the Ottoman Empire. It controlled 30% of all imperial revenue. It was, in every meaningful sense, a parallel state within the empire. The duunu um succeeded in repaying European creditors. From 1881 to 1914, Ottoman debt was reduced from 200 million pounds to 159 million. European investors got their money eventually, but the cost to the Ottoman Empire was catastrophic. The empire could not invest in its own modernization because 30% of revenue went to foreign creditors. Schools, railways, ports, factories, all were underfunded. The Duyunu Umuier undermined Ottoman sovereignty.

[01:02:33]European powers used their financial control as leverage in every diplomatic crisis. The empire became in practice a financial colony of Europe. Most of all, it destroyed Ottoman confidence. The empire that had once besieged Vienna and ruled three continents was now reduced to having European clerks count its tobacco harvest. When World War I broke out in 1914, the Ottoman Empire joined the central powers, Germany and Austria Hungary. One of the first acts of the Ottoman government was to dissolve the duunu um it was too late. The empire had been hollowed out after losing the war in 1918. The empire was dismembered by the victorious allies. Most of its territory was carved up into European protectorates and new states. The Ottoman Empire officially ended in 1922.

[01:03:27]The Republic of Turkey was founded in 1923. The first major economic decision of the new Turkish Republic was to honor the remaining Ottoman debts to European creditors. They paid them off on schedule until 1954. The total cost of European loans to the Ottoman Empire between 1854 and 1881, 16 loans. The total cost of repaying those loans, including all interest, more than 100 years of financial subjugation. The Duyonu Umuia should have been a unique historical curiosity.

[01:04:04]But the model it created, foreign management of national finances by international creditors, became the template for sovereign debt crisis ever after. When Argentina defaulted in 2001, the IMF imposed similar controls. When Greece nearly defaulted in 2012, the European Central Bank, IMF, and European Commission, the Troa, took over Greek fiscal policy in everything but name.

[01:04:32]When Sri Lanka defaulted in 2022, foreign lenders imposed similar conditions. The Dunu Umumia is alive and well today. It just has different names.

[01:04:42]The IMF, the World Bank, the European Stability Mechanism. The pattern is identical. A government borrows from foreign creditors. It cannot pay. The creditors take control of national finances. The country pays for decades.

[01:04:59]There's a tradition that survives in Turkey to this day. On December 20th, the anniversary of the decree of Muharam, financial historians gather to discuss the duunu um the discussion is always the same. How could a great empire allow this to happen? How could sovereign rulers sign away their financial independence? The answer, of course, is the answer to every sovereign debt crisis in history. They didn't think they had a choice. They never do until they don't. Subscribe for more Forgotten Financial Disasters. New episodes every Monday, Wednesday, and Friday.