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Panic of 1873: The railway bubble that hit one of America’s greatest financiers | The Story of Money

The Story of Money Podcast | Financial Times

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Every now and then a new technology comes along that changes everything – electricity, computers, potentially AI. In mid-nineteenth century America, that technology was the steam locomotive. It knitted the US economy together, driving the nation’s industrialisation during the Gilded Age. But along the way, it also caused one of the biggest financial crises in American history. FT Alphaville editor Robin Wigglesworth tells his co-host, FT columnist Gillian Tett, the story of the great railway bubble that ended in the Panic of 1873. It’s also the story of the spectacular rise and fall of Jay Cooke, the greatest banker of his day, who lost a fortune betting on a railroad that would eventually span the North American continent – just not in time to repay its debts. Robin and Gillian discuss what lessons the financier’s fate holds for the investors gambling on today’s AI boom?

Further reading:
Jay Cooke: Financier of the Civil War, by Ellis Paxson Oberholtzer (1923)
Jay Cooke's gamble: the Northern Pacific Railroad, the Sioux, and the Panic of 1873, by M John Lubetkin (2006)
Railroaded: The Transcontinentals and the Making of Modern America, by Richard White (2012)
Pop! Why Bubbles Are Great For The Economy, by Daniel Gross (2007)
A Fabulous Debt: The Epic Story of How Bonds Built the Modern World, by Robin Wigglesworth (2026 – forthcoming)

To enjoy future episodes, be sure to subscribe to The Story of Money wherever you get your podcasts, also on the show's dedicated YouTube channel here: @ftthestoryofmoney

Hosts: Gillian Tett and Robin Wigglesworth
Producer: Lulu Smyth
Senior Producers: Michela Tindera and Laurence Knight
Executive Producers: Flo Phillips and Manuela Saragosa
Original music: Breen Turner
Broadcast engineers: Bianca Wakeman and Petros Giuompasis
Podcast Development: Laura Clarke
FT Global Head of Audio: Cheryl Brumley
Video editor: Kristen Kenyon at Podcast Discovery

Image Credits:

Scenes in Wall Street during the panic. Jay Cooke & Company's office - Public Domain

The Panic, New York Times: New York Times Archive

Hotchkin(1892), Jay Cooke Portrait - Public Domain

Transcontinental Railway Imagery: Otto Herschan Collection/Hulton Archive/Getty Images, Hulton Archive/Getty Images

0:00 - Intro
1:37 - Why railways mattered to America
4:06 - Panic of 1873 and market crash details
6:24 - Jay Cooke & Co. as the Lehman Brothers of its era
7:05 - Jay Cooke’s rise and contradictions
10:19 - Cooke enters high finance and government bond sales
11:19 - Civil War bond innovation and mass marketing
14:19 - Post-war railways and national rebuilding
15:13 - Building the first transcontinental railroad
17:00 - Railways transform towns, trade, and U.S. growth
18:42 - The railway bond boom and comparison to AI spending
20:21 - Who financed the bond mania
22:48 - Cooke’s ties to government
29:57 - Cooke’s ego-driven risk taking
31:26 - Deal terms and massive exposure
33:22 - Native resistance and brutal realities of expansion
36:03 - Mismanagement, unsold bonds, and liquidity trap
37:22 - Austria’s crash sparks global contagion
38:52 - European selling hits U.S. bond markets
40:12 - No government rescue for Cooke
41:17 - Jay Cooke fails and panic erupts
43:49 - Bankruptcy, comeback, and aftermath
45:04 - Long Depression after the panic
45:42 - Railway bankruptcies, unemployment, and deflation
46:56 - Why railway booms returned
48:43 - Are bubbles bad? Lessons for infrastructure
50:43 - Is AI a “good bubble” like railways?
52:17 - Risks of stranded AI assets
53:42 - Final reflections

11 Comments

@Kem-j6t 11 hours ago (edited)

I have to question this from the get go. First RR were not new tech by 1873. It had been around for 40 years. Two, it wasn't the first corp bond boom. That distinction goes to canals after the Erie canal had been built. It was a combination of over building and the new technology of the railroad that popped the bubble. This was part of the reason for the crash of 1837. Cook was massively corrupt. The 💩 he did to aquire right of way were insane. He did thongs to drive competitors out of business that lead to anti collusion and antitrust laws. Because you act pyas doesn't mean you are.

@edwardkierklo2510 3 months ago

This may be far more relevant than many would realize. It wasn't the financing of the railroads but the constant need for more money. The capital requirements were so massive but that train stopped suddenly. Yes the data center and AI are huge hoaders of today's capital needs. Notice that the big players are now issuing debt instead of buybacks. The parallels are uncomfortably close.

@loringnilsson9974 3 months ago

Excellent presentation!!!

@Montoya2025 2 months ago

Loved this video. The Q&A was so good.

@taylorism7787 3 weeks ago

Generally good presentation, but the discussion of bubbles at the end becomes unmoored from reality. The U.S. housing boom and bust circa 2007 is one factor causing an insufficient supply of housing in the U.S., the opposite of what Wigglesworth says. Tett suggests that bubbles may inherently leave behind something beneficial which is also obviously incorrect. The boom in scammy cryptocurrencies and “greater fool” investments like Bitcoin is unlikely to leave behind much in the way of productive assets, and is more like a Ponzi scheme than it is to building railroad or fiber optic networks. The same could be said for the boom in on-line betting, which generally redistributes money from the have-nots to the haves and produces nothing of value.

@martinpaling1989 5 months ago (edited)

Liquidity is usually the crux and catastrophic issues have historically several times been triggered by banking problems in Austria.

@valentinbrescan288 5 months ago

Thanks. When you do the episode on the 1907 Crash, it would be amazing if you could please include at least a few minutes on Hetty Green 😊

@martinpaling1989 5 months ago (edited)

American railway bonds were not alone. How about the later Chinese ones for instance?

@BobLuddle 5 months ago

The USA developed an effective transportation system by 1920.
In 1967 the system was broken by the desire to promote profits
for Oil Company Investors.

Diverting the US Mail sorting system that had ridden the rails,
was abandoned to promote profits for a small group of Investors.
Some may consider that a corrupt action.

Capitalism now struggles to provide profits.
The Greed of a small number of individuals
seems to indicate the US has become the most
evil group of greedy folks ever to present
a colonial empire.