The 1873 Delusion RDF Collection Document
A self-describing RDF document containing the source-grounded knowledge graph for Gennaro Cuofano's article 'The 1873 Delusion'.
Historical Mechanism Analysis Ontology
A lightweight ontology for historical infrastructure-finance episodes, transferable diagnostic instruments, analogy boundaries, source claims, and role comparisons.
Defines the reusable analytical structures identified in 'The 1873 Delusion'.
Historical instrument
A diagnostic mechanism extracted from a historical infrastructure-finance episode.
Historical episode
A source-described episode used to isolate a financing or infrastructure mechanism.
Source claim
A claim or quantitative statement attributed to the source article rather than independently asserted by this collection.
Comparison dimension
A source-grounded dimension used to compare historical and contemporary economic roles.
Analogy boundary
A condition marking where a historical mechanism stops transferring cleanly to the present.
teaches
States the transferable lesson of a historical instrument.
check
States the observable diagnostic check associated with an instrument.
stops at
States the explicit boundary beyond which an analogy should not be stretched.
United States in 1873
Records the source's value for the United States in 1873.
Britain in 1873
Records the source's value for Britain in 1873.
United States in 2026
Records the source's value for the United States in 2026.
China in 2026
Records the source's carefully limited debtor-side comparison with China in 2026.
The 1873 Delusion: Historical Mechanisms for the AI Infrastructure Cycle
The 1873 Delusion
The closest historical analogy for the AI infrastructure cycle becomes more useful when decomposed into seven mechanisms rather than treated as a prediction.
A long-form analysis arguing that historical episodes should be used as mechanisms for inspection rather than total analogies that predict the ending of the AI infrastructure cycle.
For the last few years, I've been searching for useful historical analogies to make sense of what we're living through. I eventually brought them together into a thesis I call the AI Supercycle. History can help us understand the present, but only up to a point. Historical analysis is difficult precisely because the moment analysts begin converging around the same analogies and the same narratives, those frameworks can start constraining our understanding rather than expanding it. That is why, with this piece, I want to create some clarity around what history can teach us about the AI Supercycle, where those analogies break down, and what may actually be different this time. For two years the analogy market traded between 1999 and 1929. It has settled somewhere better. The year you now hear from people who have done the reading is 1873. It is a good choice. Look at what it offers. Between 1866 and 1873 American railroads laid 35,000 miles of new track. The industry became the country's largest employer outside agriculture. The buildout was real, and the infrastructure proved essential for a century. It was financed by bonds, sold at enormous scale by one dominant house. Jay Cooke & Company had marketed the Union war debt, then turned the same machinery to railroad paper — selling securities by advertising campaign to people who had never owned a security in their lives. Cooke staked the firm on the Northern Pacific. The railroad hit mismanagement, cost overruns and a market far cooler than the one that had greeted the first transcontinental. Cooke was writing liabilities against bonds it had not yet sold, and funding long-dated assets with short-term deposits. In late 1872 a London partner said it was cruel to use depositors' money to prop up Northern Pacific bonds, and that the railroad should go borrow at whatever price it could get. It could not. On 18 September 1873 Cooke suspended withdrawals. The New York Stock Exchange closed for ten days. What followed ran until 1879. You can see the appeal. A real technology. A buildout that completed anyway. A credit event rather than a demand event. A financier that broke before the assets did. Infrastructure paper sold to people with no way to evaluate it. That is not a lazy analogy. It is the most sophisticated one in circulation. And it casts the United States in the wrong role. The roles are the wrong way round The 1873 comparison quietly assumes that America then held the position America holds now. It did not. The gap is enormous. America in 1873 was the emerging market. It was a capital-importing industrialiser, building its infrastructure substantially with other people's savings. The Federal Reserve's own historical work on the period carries the title Foreign Portfolio Investment When the United States was an Emerging Market. And the crisis did not start in New York. It started at the Vienna Stock Exchange in May 1873 and reached America in September, as European capital pulled home. The Panic of 1873 is, in large part, the story of what happens to a developing economy when the foreign money leaves. Britain was the hegemon. It held the reserve currency, the deepest capital market on earth, and the position of the world's creditor. British capital export rose through the 1850s and 1860s. From 1870 to 1914 net foreign investment averaged around a third of everything the nation saved each year. Net overseas assets grew from roughly 7% of national wealth in 1850 to about 14% by 1870, and around 32% by 1913. American railways alone took close to 9% of British overseas investment. So when American railroads went down in 1873, a great deal of the loss landed in London. Now ask which of those two the United States resembles today. It holds the reserve currency. It has the deepest capital markets in the world. Its institutions are being asked to fund a buildout at a scale nobody else can match. On the seat it occupies, the United States in 2026 is Britain — not America in 1873. If you want a debtor-side match for 1873's America — a large industrialising economy building furiously, importing capital, running a state-directed development programme — you are describing something closer to China's position than to America's. That comparison should be handled lightly and not stretched. The point here is narrower: the seat matters, and the standard analogy puts the United States in the wrong one. Which changes the question you should be asking. Not what happened to the country that overbuilt. Instead: What happens to the creditor whose savings financed the buildout, when the buildout disappoints? Britain answered that repeatedly. In 1873. In the Baring crisis of 1890. In Argentina, in Australia, across the American West. It took real losses every time. It kept compounding anyway, and its overseas position more than quadrupled as a share of national wealth across the period. The creditor's losses were survivable because they were spread — across many borrowers, many countries, many decades. There is a long-run critique attached, and it is still argued. Some historians hold that Britain's vast capital export starved its own industry and helped it fall behind Germany and the United States. That debate is not settled. And here the analogy bends in a useful way rather than breaking. Britain exported its savings to build other countries' infrastructure. The United States is mobilising its savings to build its own. It is the creditor nation and the construction site at once — a combination neither 1873's America nor Victorian Britain ever had. That is not a reason to throw either away. It is a reason to stop looking for the match. What 1873 can and cannot tell you Press the best analogy available and the limits show up fast. The monetary regime has no counterpart, and it is not what people usually say. America in 1873 was not on a simple gold standard. Greenbacks had been inconvertible since 1862. The Specie Resumption Act only passed in 1875, and resumption came on 1 January 1879. So this was a contested, partly-paper regime moving toward gold — and there was no central bank, forty years before the Federal Reserve existed. Nobody could supply liquidity when the banks called their loans. Whatever you conclude about how the shock spread, it cannot cross into a world with a Fed. The subsidy structure has no counterpart, and the numbers are messy. The Northern Pacific rested on an enormous federal land grant. Sources disagree badly about its size — figures range from around 40 million acres to 47 million, and one teaching source says over 60 million were signed over. That spread reflects statutory entitlement versus land actually patented. The safe statement is tens of millions of acres. The point survives either way: this railroad's economics were inseparable from a state transfer with no modern equivalent. The damage was smaller than it gets quoted. 'Most of the major railroads failed' is wrong. The standard figure is 89 of the country's 364 railroads going bankrupt — roughly a quarter — alongside more than 100 bank failures and 18,000 business failures over two years. Unemployment is usually given as reaching about 14% by 1876. Nineteenth-century unemployment numbers are reconstructed rather than measured, so treat that as an estimate. The cause is disputed, and not mildly. Vienna first, in May. European capital withdrawal. Silver demonetised the same year. Monetary contraction. Even the label is argued — a serious body of work reads the period as strong real growth under falling prices, a price story mistaken for an output story. So the most attractive analogy in circulation arrives with a disputed cause, an absent monetary regime, a subsidy structure that cannot recur, and America miscast. You cannot transfer its ending. It does not have one the specialists agree on. That is not a flaw in 1873. It is what every episode looks like under pressure. Why the matching game fails at the root It is tempting to treat a past episode as a solved case. Setup, mechanism, break, aftermath, legible end to end. That is what makes an analogy feel like analysis. It is nothing of the sort. The causal chain we recite was assembled afterwards, by people who already knew the ending. It was not visible while things were happening. Often it was not even the argument being had. Britain in 1846 was not mainly debating railway overcapacity. It was debating a failed grain harvest, gold leaving the country to buy food, and a central bank tightening into it. The overbuilding explanation came later, and historians still disagree about it. One line of scholarship argues the mania rested on systematic accounting manipulation by promoters. Another argues it did not. That dispute is live in the journals today. Or take 2000. One of the load-bearing facts justifying the telecom buildout was that internet traffic doubled every hundred days. Researchers went and measured it. Actual public internet traffic was growing at roughly 100% a year — an order of magnitude below the claim in circulation. Those people were not being reckless. They were reasoning correctly from a number that was wrong, and they could not tell which of the numbers in front of them was the wrong one. That is our position now. The tidy chain is a hindsight artefact — built after the fact, contested by the people who study it, invisible to everyone living inside it. So picking one era is worse than lazy. It is a bet on one contested reconstruction, usually the popular version, usually the one that flatters what you already believed — held with a confidence the historians themselves do not have. What history is for Two things. Neither is prediction. Neither requires knowing which year we are in. A repertoire of mechanisms. Each episode isolates one specific way a buildout goes wrong, described concretely enough to check whether it is present now. The unit of transfer is the mechanism and the thing it tells you to look at. Not the ending. Smaller mistakes. Capital-heavy general-purpose technologies get overbuilt. Always. The force that pulls capital in is the same force that makes the technology real. You do not get the buildout without the overshoot. But the damage is not fixed. The same losses can produce household ruin, a contained sector wipeout, or barely a ripple — depending on how the financing was built and watched. That part is learnable in advance. So the question is not whether we make the mistake. We will. The question is whether we are making a smaller one. Seven instruments follow. Each gives one mechanism, one thing to check, and an honest statement of where it stops working. Instrument one — the creditor's seat Britain, 1850s to 1870s. Capital export rose through the 1850s and 1860s and averaged about a third of national savings from 1870 to 1914. Overseas assets went from around 7% of national wealth in 1850 to roughly a third by 1913. American railways took close to 9% of it. What it teaches. The creditor survives the borrower's crisis. Britain funded booms that broke, repeatedly, took the write-downs, and kept compounding for decades. The losses were survivable because they were spread across many borrowers, many countries and many decades — not because they were avoided. What to check. Whether the exposure being created now has that property. British capital was spread across dozens of countries and hundreds of issuers. A creditor position concentrated in one technology, one geography and a short list of counterparties has the seat without the diversification that made the seat survivable. Where it stops. Britain exported savings to build other people's infrastructure. America is mobilising savings to build its own. And the critique that capital export starved British industry runs the opposite way for a domestic buildout. The seat transfers. The geography does not. Instrument two — the intermediary America, 1873. Cooke, the Northern Pacific, the September suspension. What it teaches. The intermediary breaks before the assets do. Cooke did not fail because trains stopped running. It failed because it funded long-dated assets with short-dated money and could not place paper it had already borrowed against. The railroads mostly failed afterwards — as a consequence of the credit event, not a cause of it. A funding failure at the financier can arrive long before anything goes wrong in the underlying business. What to check. The financing entities, not only the operators. Maturity profiles. Whether commitments are being written against capital not yet raised. Whether twenty-year assets are funded with money that reprices in three. And who the paper is finally sold to. Where it stops. No central bank. An inconvertible-greenback regime. A land grant in the tens of millions of acres. A European crisis arriving first. And America in the debtor's seat. The mechanism transfers. The severity and the spread do not. Instrument three — the unbuilt British railways, 1840s. In 1846 Parliament passed 272 Acts incorporating railway companies, covering about 9,500 miles of proposed route, with authorised capital around £132 million. Authorised is not spent, and the difference matters. Actual railway investment was £30 million in 1846 and peaked at £44 million in 1847 — almost 8% of British GDP, and twice that year's military budget. It did not fall back to earlier levels until 1850. The share index dropped by around two thirds by 1850. About a third of the railways authorised were never built. One more distinction, usually compressed into one thing. There was a parliamentary deposit required to promote a bill. Separately, there were partly-paid shares with the balance callable later. It was the calls on partly-paid shares that forced holders to sell everything else they owned. What it teaches. The infrastructure completing and the financiers being repaid are independent outcomes. Britain got the network and the equity holders were destroyed. Both. Which retires an argument now in constant circulation: the demand is real, therefore the capital is well spent. Real demand is not the counterargument to overbuilding. It is the engine of it. What to check. The adjustment arrived as abandonment of authorised projects that were never started — not as default on operating railways. So watch contracted capacity that quietly fails to commence. Signed, and not yet in concrete. Where it stops. Partly-paid shares with capital calls have no modern equivalent. Remove them and the household-ruin channel largely disappears. Instrument four — the booking Telecom, 1996 to 2001. More than 2,000 competitive carriers raised around $82 billion by the end of 1999. Industry capital spending went from about $56 billion in 1997 to roughly $120 billion in 2000. Then the equipment makers began financing their own customers. Lucent disclosed maximum commitments of about $8.1 billion. Nortel committed around $3.1 billion with roughly $1.4 billion drawn. Cisco around $2.4 billion. Across nine suppliers, combined exposure reached about $25.6 billion by the end of 2000. Lucent's filings show provisions of roughly $2.2 billion in 2001 and $1.3 billion in 2002 — for bad debts and customer financings. The SEC found about $1.1 billion of improperly recognised revenue. What it teaches. Get the mechanism right, because the popular version is wrong. Vendor financing did not automatically let a supplier book revenue on shipment. Recognition still depended on accounting rules. The real problem was subtler and worse. Financing, side agreements and doubtful collectibility together created both the incentive and the opportunity for aggressive recognition. Revenue quality and credit quality stopped being independent. The supplier was reporting sales to customers whose ability to pay was something it was itself underwriting. And the timing lesson, which is the most useful item here. Funding did not taper. There were billions available in January 2001. By April there was effectively nothing. What to check. Whether exposure sits on the supplier's own accounts or is underwritten independently. And whether anyone's plan assumes they will see the window narrowing in time to react. Where it stops. Those carriers had almost no revenue and no path to it. Today's frontier counterparties have very large, very fast-growing revenue alongside very large losses. That is a different animal, and treating them as the same is where this analogy gets abused. Instrument five — the structure Electrification, 1892 to 1935. Samuel Insull built something unambiguously real. Chicago Edison became the largest electricity producer in the world, and he drove the economics that put power into ordinary homes. Above those operating utilities he stacked a pyramid — dozens of holding companies over hundreds of operating ones, capped by two large investment trusts, with an original investment of well under a million dollars ultimately directing billions of other people's capital. It collapsed in 1932. The holding companies had borrowed against their own securities. The securities fell. Banks called the loans. And the entities had been cross-insuring each other, so they went down together. Abuse of utility holding-company structures was central to the passage of the Public Utility Holding Company Act in 1935. Insull himself was tried and acquitted on every charge. What it teaches. Asset quality and financing quality are different questions with different answers. A yes to the first gives you limited protection on the second. Electricity was as real as anything in the twentieth century. It saved no shareholder. One qualification, because the clean version overstates it. This happened inside the Great Depression, which damaged operating electricity and transit revenues too. So 'the asset was never the problem' is too strong. The honest version: a sound business, damaged but functioning, was destroyed as an investment by the leverage stacked above it. What to check. Entities borrowing against holdings whose value is marked to the thing being financed. Cross-obligations that make nominally separate entities fail together. And the aftermath. A failure located in financing structure produces regulation of financing structure. Where it stops. The Depression makes the pyramid's own contribution hard to isolate. And modern disclosure — much of it descended from this very episode — removes a lot of the opacity that let it run. Instrument six — containment Shale, 2010 to 2020. US shale burned roughly $300 billion of negative free cash flow between 2010 and 2019, impaired more than $450 billion of invested capital, and produced over 190 bankruptcies. Production more than doubled, peaking near 13 million barrels a day. And it caused no systemic event. The tempting explanation is that the paper never reached the financial system's core. That is false, and I had it wrong. American banks carried substantial exposure. Regulators reported $276.5 billion of oil and gas commitments in the 2015 shared national credit review — about 7% of a $3.9 trillion portfolio. Classified oil and gas credits went from $6.9 billion in 2014 to $34.2 billion in 2015 to roughly $77 billion in 2016. Supervisors gave reserve-based energy lending dedicated attention. It is also too strong to say no regulation followed. There was no new statute, but there was serious supervisory intervention. What it teaches — and the corrected version is more useful than the original. Containment is not the absence of exposure. It is exposure that is sized, secured, marked and supervised. Shale losses stayed contained despite meaningful bank exposure, because that exposure was a modest share of a large portfolio, secured against reserves with periodic redetermination, marked as it deteriorated, and watched by a supervisory apparatus that already had a name for the problem and a review cycle to catch it. That is a far better standard than 'keep it away from the banks,' because it is a list of properties you can go and check. Where it stops. Shale sells an undifferentiated commodity into a global price it does not set. Demand was never the question, only price. Containment transfers. The demand analysis does not. Instrument seven — the machinery Aircraft finance, 1994 to now. Enhanced equipment trust certificates have financed aircraft since the early 1990s, with senior tranches often rated well above the airline's own credit. Airlines go bankrupt constantly. The structure works anyway. Get the law right, because the shorthand version is wrong. Section 1110 of the US Bankruptcy Code does not simply exempt aircraft from the automatic stay. The stay generally applies for an initial 60 days. After that, qualifying creditors may repossess unless the debtor agrees to perform and cures its defaults, or the parties agree an extension. Liquidity facilities covering around 18 months of interest are standard on certain tranches. Overcollateralisation is standard too, though the specific levels vary by deal. What it teaches. Look at what that apparatus actually is. It is not a claim that the asset is good. It is machinery built on the assumption that the tenant will fail, engineered to work anyway. That is what a mature asset class looks like — not confidence in the borrower, but structure that holds when the confidence turns out to be misplaced. What to check. Whether equivalent machinery exists here. And the sharpest point in this memo: an aircraft can be flown away. A data centre cannot. A repossessed aircraft enters a global market of lessors. A repossessed AI facility is racks bolted inside a specific building, on a specific power contract, in a specific jurisdiction. You cannot take it anywhere. You can only re-tenant it where it stands. So recovery depends on another operator wanting that exact bundle, in that location, at that moment — under conditions correlated with whatever killed the first tenant. Where it stops. This is a live market, not a historical reconstruction, which makes it the most reliable of the seven and the least dramatic. It shows what good looks like after thirty years. It does not show what the first five look like. Why several beat one None of these supplies an ending. What they supply is a set of questions with something observable attached: Is the creditor's exposure spread across borrowers, geographies and horizons? Is the intermediary funding long assets with short money? Is the adjustment appearing in the unbuilt rather than the built? Have revenue quality and credit quality stopped being independent? Is anyone borrowing against collateral marked to the thing being financed? Is the exposure sized, secured, marked and supervised? Does recovery machinery exist, and has any of it been tested? Seven partial matches, used as instruments, triangulate. One total match, used as a verdict, is a bet on somebody's contested reconstruction of events they were not present for. And they disagree with each other, which is the point. The 1840s say the buildout completes regardless. 1873 says the financier can break long before the assets. Insull says leverage above a sound business can destroy it anyway. Shale says vast losses can be absorbed when properly structured and watched. Telecom says similar losses turn lethal once reporting and credit become entangled. Any one of those alone gives you a confident and incomplete view. Is the mistake getting smaller? One caution first, because this is where memos like this overreach. What the August 2026 announcements establish is directional. Nvidia signed memorandums of understanding with Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs and KKR around independent compute-financing platforms, with an ambition to mobilise more than $500 billion of third-party capital. The institutions are to underwrite projects independently. Nvidia may provide residual-value support of up to 25% in some cases. These are memorandums, subject to final agreements. They do not establish that exposure will sit off Nvidia's balance sheet, that structures will be liability-matched, that the debt will be investment grade or held to maturity, or that any historical failure mode has been closed. So what follows separates design intent from demonstrated fact. Entangling revenue and credit — the design looks deliberately better. Not yet demonstrated. Independent third-party underwriting and capped residual-value support aim directly at the mechanism that tied Lucent's reporting to its customers' solvency. Whether executed agreements achieve it cannot be known until they exist and are disclosed. Maturity mismatch — the design looks better. Institutional infrastructure capital is long-duration by construction, which is the right money for a long-lived asset, and a real improvement on Cooke. It holds only if the vehicles are funded as described. Creditor diversification — open. Britain's creditor position survived because it was spread widely. A compute-credit position concentrated in one technology, one geography and a short list of counterparties does not yet have that property. Counterparty concentration — appears repeated. The frontier tenant list is short. The stronger claim, that a majority of measurable AI revenue sits with a few loss-making labs, depends entirely on the denominator you choose and should be published with it. Note also that private companies can be audited without publishing accounts, so 'unaudited' is the wrong word for 'not publicly disclosed.' Stacked structures — present in form, far better disclosed. Contracted capacity outside the balance sheet, and vehicles borrowing against marked collateral, both persist. Disclosure is vastly better than in 1932. Sized, secured, marked, supervised — largely untested. This is the shale standard and the most useful checklist available. For compute credit, none of the four has been demonstrated at scale, and no supervisory apparatus yet has a name for the problem or a review cycle to catch it. Recovery machinery — not built. No equivalent statutory regime. No tested repossession or re-tenanting path. No liquid secondary market in facility-plus-power bundles. No public case of an AI facility being re-tenanted out of distress, though that is a hard thing to prove absolutely. The honest bottom line, at the strength the evidence supports: Some of the structures now being proposed appear deliberately designed to reduce direct vendor-financing risk, while potentially spreading compute exposure across a far broader institutional capital base. Whether that recreates an Insull-style transmission is not established. It is the open question, and it is the right one to watch. Where the repertoire runs out Three propositions. Theses, not findings. The efficiency clock. The claim that no previous buildout had an input whose unit cost collapsed by orders of magnitude while the buildout ran is provocative and not yet tested against a systematic survey. If it holds, it cuts both ways — expanding the market while obsoleting the specific collateral in the specific vehicle. Absorption speed. Dark fibre waited years for demand. The proposition that current AI compute is absorbed roughly as fast as it can be energised is widely asserted, and would mean the overhang risk is about vintage rather than quantity. It needs a utilisation dataset to become a finding. Sovereign timing. Rules and buildout appear to be under construction in parallel rather than in sequence. If so, that is the one respect in which this cycle outperforms its predecessors, because the response may arrive before the failure. Compression The consensus has largely settled on 1873, and for good reason. It is probably the closest historical analogue we have: a genuine technological breakthrough, a massive physical buildout, a credit shock rather than a collapse in end demand, and a financial intermediary that failed before the underlying infrastructure did. But the analogy is also incomplete. In 1873, the United States was the capital-importing emerging market. The shock originated in Vienna, European capital retreated home, and Britain sat at the center of the system as creditor, reserve-currency issuer, and deepest capital market. In that sense, the United States today looks more like Britain than America in 1873. Except that it is also the place where the infrastructure is being built. That combination has no clean historical equivalent. And that is the larger problem with historical analogies. They become much cleaner after the fact. Once the ending is known, historians can assemble tidy causal chains that were far less obvious to the people living through them. At the time, participants were arguing about everything from grain harvests to traffic forecasts, many of which turned out to be spectacularly wrong. So I think the useful lesson is narrower. Each historical episode gives us a mechanism we can actually inspect: how creditors diversify risk, where maturity mismatches sit, who absorbs the adjustment when expected capacity is not built, how revenue and credit become linked, how much leverage sits on top of otherwise sound businesses, how exposures are sized and secured, and whether the financing structure assumes that some tenants will eventually fail. Look at today through those mechanisms and something interesting emerges. The structures being built around AI infrastructure appear deliberately designed to avoid some of the failure modes that destroyed equipment makers in 2001, while simultaneously distributing risk across a much broader set of capital providers. We do not yet know what that broader holder base will mean when the cycle turns. And that is really the point. History cannot tell us how this ends. But it can help us identify which mechanisms matter, which assumptions are fragile, and which questions are still genuinely open. Those are the questions worth answering.
Gennaro Cuofano
The Business Engineer
Kingsley Uyi Idehen
Codex Desktop
GPT-5 Chat
kg-generator skill
Generates standards-compliant source-grounded knowledge graphs.
rdf-infographic-skill
Renders validated RDF as an interactive HTML infographic and Knowledge Graph Explorer.
AI infrastructure cycle
The contemporary capital-intensive buildout of compute, data centers, power capacity, and financing structures examined by the source.
Historical mechanism method
Use several partial historical matches as diagnostic instruments, transfer mechanisms rather than endings, and record where each analogy stops.
Opening argument
For the last few years, I've been searching for useful historical analogies to make sense of what we're living through. I eventually brought them together into a thesis I call the AI Supercycle. History can help us understand the present, but only up to a point. Historical analysis is difficult precisely because the moment analysts begin converging around the same analogies and the same narratives, those frameworks can start constraining our understanding rather than expanding it. That is why, with this piece, I want to create some clarity around what history can teach us about the AI Supercycle, where those analogies break down, and what may actually be different this time. For two years the analogy market traded between 1999 and 1929. It has settled somewhere better. The year you now hear from people who have done the reading is 1873. It is a good choice. Look at what it offers. Between 1866 and 1873 American railroads laid 35,000 miles of new track. The industry became the country's largest employer outside agriculture. The buildout was real, and the infrastructure proved essential for a century. It was financed by bonds, sold at enormous scale by one dominant house. Jay Cooke & Company had marketed the Union war debt, then turned the same machinery to railroad paper — selling securities by advertising campaign to people who had never owned a security in their lives. Cooke staked the firm on the Northern Pacific. The railroad hit mismanagement, cost overruns and a market far cooler than the one that had greeted the first transcontinental. Cooke was writing liabilities against bonds it had not yet sold, and funding long-dated assets with short-term deposits. In late 1872 a London partner said it was cruel to use depositors' money to prop up Northern Pacific bonds, and that the railroad should go borrow at whatever price it could get. It could not. On 18 September 1873 Cooke suspended withdrawals. The New York Stock Exchange closed for ten days. What followed ran until 1879. You can see the appeal. A real technology. A buildout that completed anyway. A credit event rather than a demand event. A financier that broke before the assets did. Infrastructure paper sold to people with no way to evaluate it. That is not a lazy analogy. It is the most sophisticated one in circulation. And it casts the United States in the wrong role.
The roles are the wrong way round
The 1873 comparison quietly assumes that America then held the position America holds now. It did not. The gap is enormous. America in 1873 was the emerging market. It was a capital-importing industrialiser, building its infrastructure substantially with other people's savings. The Federal Reserve's own historical work on the period carries the title Foreign Portfolio Investment When the United States was an Emerging Market. And the crisis did not start in New York. It started at the Vienna Stock Exchange in May 1873 and reached America in September, as European capital pulled home. The Panic of 1873 is, in large part, the story of what happens to a developing economy when the foreign money leaves. Britain was the hegemon. It held the reserve currency, the deepest capital market on earth, and the position of the world's creditor. British capital export rose through the 1850s and 1860s. From 1870 to 1914 net foreign investment averaged around a third of everything the nation saved each year. Net overseas assets grew from roughly 7% of national wealth in 1850 to about 14% by 1870, and around 32% by 1913. American railways alone took close to 9% of British overseas investment. So when American railroads went down in 1873, a great deal of the loss landed in London. Now ask which of those two the United States resembles today. It holds the reserve currency. It has the deepest capital markets in the world. Its institutions are being asked to fund a buildout at a scale nobody else can match. On the seat it occupies, the United States in 2026 is Britain — not America in 1873. If you want a debtor-side match for 1873's America — a large industrialising economy building furiously, importing capital, running a state-directed development programme — you are describing something closer to China's position than to America's. That comparison should be handled lightly and not stretched. The point here is narrower: the seat matters, and the standard analogy puts the United States in the wrong one. Which changes the question you should be asking. Not what happened to the country that overbuilt. Instead: What happens to the creditor whose savings financed the buildout, when the buildout disappoints? Britain answered that repeatedly. In 1873. In the Baring crisis of 1890. In Argentina, in Australia, across the American West. It took real losses every time. It kept compounding anyway, and its overseas position more than quadrupled as a share of national wealth across the period. The creditor's losses were survivable because they were spread — across many borrowers, many countries, many decades. There is a long-run critique attached, and it is still argued. Some historians hold that Britain's vast capital export starved its own industry and helped it fall behind Germany and the United States. That debate is not settled. And here the analogy bends in a useful way rather than breaking. Britain exported its savings to build other countries' infrastructure. The United States is mobilising its savings to build its own. It is the creditor nation and the construction site at once — a combination neither 1873's America nor Victorian Britain ever had. That is not a reason to throw either away. It is a reason to stop looking for the match.
What 1873 can and cannot tell you
Press the best analogy available and the limits show up fast. The monetary regime has no counterpart, and it is not what people usually say. America in 1873 was not on a simple gold standard. Greenbacks had been inconvertible since 1862. The Specie Resumption Act only passed in 1875, and resumption came on 1 January 1879. So this was a contested, partly-paper regime moving toward gold — and there was no central bank, forty years before the Federal Reserve existed. Nobody could supply liquidity when the banks called their loans. Whatever you conclude about how the shock spread, it cannot cross into a world with a Fed. The subsidy structure has no counterpart, and the numbers are messy. The Northern Pacific rested on an enormous federal land grant. Sources disagree badly about its size — figures range from around 40 million acres to 47 million, and one teaching source says over 60 million were signed over. That spread reflects statutory entitlement versus land actually patented. The safe statement is tens of millions of acres. The point survives either way: this railroad's economics were inseparable from a state transfer with no modern equivalent. The damage was smaller than it gets quoted. 'Most of the major railroads failed' is wrong. The standard figure is 89 of the country's 364 railroads going bankrupt — roughly a quarter — alongside more than 100 bank failures and 18,000 business failures over two years. Unemployment is usually given as reaching about 14% by 1876. Nineteenth-century unemployment numbers are reconstructed rather than measured, so treat that as an estimate. The cause is disputed, and not mildly. Vienna first, in May. European capital withdrawal. Silver demonetised the same year. Monetary contraction. Even the label is argued — a serious body of work reads the period as strong real growth under falling prices, a price story mistaken for an output story. So the most attractive analogy in circulation arrives with a disputed cause, an absent monetary regime, a subsidy structure that cannot recur, and America miscast. You cannot transfer its ending. It does not have one the specialists agree on. That is not a flaw in 1873. It is what every episode looks like under pressure.
Why the matching game fails at the root
It is tempting to treat a past episode as a solved case. Setup, mechanism, break, aftermath, legible end to end. That is what makes an analogy feel like analysis. It is nothing of the sort. The causal chain we recite was assembled afterwards, by people who already knew the ending. It was not visible while things were happening. Often it was not even the argument being had. Britain in 1846 was not mainly debating railway overcapacity. It was debating a failed grain harvest, gold leaving the country to buy food, and a central bank tightening into it. The overbuilding explanation came later, and historians still disagree about it. One line of scholarship argues the mania rested on systematic accounting manipulation by promoters. Another argues it did not. That dispute is live in the journals today. Or take 2000. One of the load-bearing facts justifying the telecom buildout was that internet traffic doubled every hundred days. Researchers went and measured it. Actual public internet traffic was growing at roughly 100% a year — an order of magnitude below the claim in circulation. Those people were not being reckless. They were reasoning correctly from a number that was wrong, and they could not tell which of the numbers in front of them was the wrong one. That is our position now. The tidy chain is a hindsight artefact — built after the fact, contested by the people who study it, invisible to everyone living inside it. So picking one era is worse than lazy. It is a bet on one contested reconstruction, usually the popular version, usually the one that flatters what you already believed — held with a confidence the historians themselves do not have.
What history is for
Two things. Neither is prediction. Neither requires knowing which year we are in. A repertoire of mechanisms. Each episode isolates one specific way a buildout goes wrong, described concretely enough to check whether it is present now. The unit of transfer is the mechanism and the thing it tells you to look at. Not the ending. Smaller mistakes. Capital-heavy general-purpose technologies get overbuilt. Always. The force that pulls capital in is the same force that makes the technology real. You do not get the buildout without the overshoot. But the damage is not fixed. The same losses can produce household ruin, a contained sector wipeout, or barely a ripple — depending on how the financing was built and watched. That part is learnable in advance. So the question is not whether we make the mistake. We will. The question is whether we are making a smaller one. Seven instruments follow. Each gives one mechanism, one thing to check, and an honest statement of where it stops working.
Instrument one — the creditor's seat
Britain, 1850s to 1870s. Capital export rose through the 1850s and 1860s and averaged about a third of national savings from 1870 to 1914. Overseas assets went from around 7% of national wealth in 1850 to roughly a third by 1913. American railways took close to 9% of it. What it teaches. The creditor survives the borrower's crisis. Britain funded booms that broke, repeatedly, took the write-downs, and kept compounding for decades. The losses were survivable because they were spread across many borrowers, many countries and many decades — not because they were avoided. What to check. Whether the exposure being created now has that property. British capital was spread across dozens of countries and hundreds of issuers. A creditor position concentrated in one technology, one geography and a short list of counterparties has the seat without the diversification that made the seat survivable. Where it stops. Britain exported savings to build other people's infrastructure. America is mobilising savings to build its own. And the critique that capital export starved British industry runs the opposite way for a domestic buildout. The seat transfers. The geography does not.
Instrument two — the intermediary
America, 1873. Cooke, the Northern Pacific, the September suspension. What it teaches. The intermediary breaks before the assets do. Cooke did not fail because trains stopped running. It failed because it funded long-dated assets with short-dated money and could not place paper it had already borrowed against. The railroads mostly failed afterwards — as a consequence of the credit event, not a cause of it. A funding failure at the financier can arrive long before anything goes wrong in the underlying business. What to check. The financing entities, not only the operators. Maturity profiles. Whether commitments are being written against capital not yet raised. Whether twenty-year assets are funded with money that reprices in three. And who the paper is finally sold to. Where it stops. No central bank. An inconvertible-greenback regime. A land grant in the tens of millions of acres. A European crisis arriving first. And America in the debtor's seat. The mechanism transfers. The severity and the spread do not.
Instrument three — the unbuilt
British railways, 1840s. In 1846 Parliament passed 272 Acts incorporating railway companies, covering about 9,500 miles of proposed route, with authorised capital around £132 million. Authorised is not spent, and the difference matters. Actual railway investment was £30 million in 1846 and peaked at £44 million in 1847 — almost 8% of British GDP, and twice that year's military budget. It did not fall back to earlier levels until 1850. The share index dropped by around two thirds by 1850. About a third of the railways authorised were never built. One more distinction, usually compressed into one thing. There was a parliamentary deposit required to promote a bill. Separately, there were partly-paid shares with the balance callable later. It was the calls on partly-paid shares that forced holders to sell everything else they owned. What it teaches. The infrastructure completing and the financiers being repaid are independent outcomes. Britain got the network and the equity holders were destroyed. Both. Which retires an argument now in constant circulation: the demand is real, therefore the capital is well spent. Real demand is not the counterargument to overbuilding. It is the engine of it. What to check. The adjustment arrived as abandonment of authorised projects that were never started — not as default on operating railways. So watch contracted capacity that quietly fails to commence. Signed, and not yet in concrete. Where it stops. Partly-paid shares with capital calls have no modern equivalent. Remove them and the household-ruin channel largely disappears.
Instrument four — the booking
Telecom, 1996 to 2001. More than 2,000 competitive carriers raised around $82 billion by the end of 1999. Industry capital spending went from about $56 billion in 1997 to roughly $120 billion in 2000. Then the equipment makers began financing their own customers. Lucent disclosed maximum commitments of about $8.1 billion. Nortel committed around $3.1 billion with roughly $1.4 billion drawn. Cisco around $2.4 billion. Across nine suppliers, combined exposure reached about $25.6 billion by the end of 2000. Lucent's filings show provisions of roughly $2.2 billion in 2001 and $1.3 billion in 2002 — for bad debts and customer financings. The SEC found about $1.1 billion of improperly recognised revenue. What it teaches. Get the mechanism right, because the popular version is wrong. Vendor financing did not automatically let a supplier book revenue on shipment. Recognition still depended on accounting rules. The real problem was subtler and worse. Financing, side agreements and doubtful collectibility together created both the incentive and the opportunity for aggressive recognition. Revenue quality and credit quality stopped being independent. The supplier was reporting sales to customers whose ability to pay was something it was itself underwriting. And the timing lesson, which is the most useful item here. Funding did not taper. There were billions available in January 2001. By April there was effectively nothing. What to check. Whether exposure sits on the supplier's own accounts or is underwritten independently. And whether anyone's plan assumes they will see the window narrowing in time to react. Where it stops. Those carriers had almost no revenue and no path to it. Today's frontier counterparties have very large, very fast-growing revenue alongside very large losses. That is a different animal, and treating them as the same is where this analogy gets abused.
Instrument five — the structure
Electrification, 1892 to 1935. Samuel Insull built something unambiguously real. Chicago Edison became the largest electricity producer in the world, and he drove the economics that put power into ordinary homes. Above those operating utilities he stacked a pyramid — dozens of holding companies over hundreds of operating ones, capped by two large investment trusts, with an original investment of well under a million dollars ultimately directing billions of other people's capital. It collapsed in 1932. The holding companies had borrowed against their own securities. The securities fell. Banks called the loans. And the entities had been cross-insuring each other, so they went down together. Abuse of utility holding-company structures was central to the passage of the Public Utility Holding Company Act in 1935. Insull himself was tried and acquitted on every charge. What it teaches. Asset quality and financing quality are different questions with different answers. A yes to the first gives you limited protection on the second. Electricity was as real as anything in the twentieth century. It saved no shareholder. One qualification, because the clean version overstates it. This happened inside the Great Depression, which damaged operating electricity and transit revenues too. So 'the asset was never the problem' is too strong. The honest version: a sound business, damaged but functioning, was destroyed as an investment by the leverage stacked above it. What to check. Entities borrowing against holdings whose value is marked to the thing being financed. Cross-obligations that make nominally separate entities fail together. And the aftermath. A failure located in financing structure produces regulation of financing structure. Where it stops. The Depression makes the pyramid's own contribution hard to isolate. And modern disclosure — much of it descended from this very episode — removes a lot of the opacity that let it run.
Instrument six — containment
Shale, 2010 to 2020. US shale burned roughly $300 billion of negative free cash flow between 2010 and 2019, impaired more than $450 billion of invested capital, and produced over 190 bankruptcies. Production more than doubled, peaking near 13 million barrels a day. And it caused no systemic event. The tempting explanation is that the paper never reached the financial system's core. That is false, and I had it wrong. American banks carried substantial exposure. Regulators reported $276.5 billion of oil and gas commitments in the 2015 shared national credit review — about 7% of a $3.9 trillion portfolio. Classified oil and gas credits went from $6.9 billion in 2014 to $34.2 billion in 2015 to roughly $77 billion in 2016. Supervisors gave reserve-based energy lending dedicated attention. It is also too strong to say no regulation followed. There was no new statute, but there was serious supervisory intervention. What it teaches — and the corrected version is more useful than the original. Containment is not the absence of exposure. It is exposure that is sized, secured, marked and supervised. Shale losses stayed contained despite meaningful bank exposure, because that exposure was a modest share of a large portfolio, secured against reserves with periodic redetermination, marked as it deteriorated, and watched by a supervisory apparatus that already had a name for the problem and a review cycle to catch it. That is a far better standard than 'keep it away from the banks,' because it is a list of properties you can go and check. Where it stops. Shale sells an undifferentiated commodity into a global price it does not set. Demand was never the question, only price. Containment transfers. The demand analysis does not.
Instrument seven — the machinery
Aircraft finance, 1994 to now. Enhanced equipment trust certificates have financed aircraft since the early 1990s, with senior tranches often rated well above the airline's own credit. Airlines go bankrupt constantly. The structure works anyway. Get the law right, because the shorthand version is wrong. Section 1110 of the US Bankruptcy Code does not simply exempt aircraft from the automatic stay. The stay generally applies for an initial 60 days. After that, qualifying creditors may repossess unless the debtor agrees to perform and cures its defaults, or the parties agree an extension. Liquidity facilities covering around 18 months of interest are standard on certain tranches. Overcollateralisation is standard too, though the specific levels vary by deal. What it teaches. Look at what that apparatus actually is. It is not a claim that the asset is good. It is machinery built on the assumption that the tenant will fail, engineered to work anyway. That is what a mature asset class looks like — not confidence in the borrower, but structure that holds when the confidence turns out to be misplaced. What to check. Whether equivalent machinery exists here. And the sharpest point in this memo: an aircraft can be flown away. A data centre cannot. A repossessed aircraft enters a global market of lessors. A repossessed AI facility is racks bolted inside a specific building, on a specific power contract, in a specific jurisdiction. You cannot take it anywhere. You can only re-tenant it where it stands. So recovery depends on another operator wanting that exact bundle, in that location, at that moment — under conditions correlated with whatever killed the first tenant. Where it stops. This is a live market, not a historical reconstruction, which makes it the most reliable of the seven and the least dramatic. It shows what good looks like after thirty years. It does not show what the first five look like.
Why several beat one
None of these supplies an ending. What they supply is a set of questions with something observable attached: Is the creditor's exposure spread across borrowers, geographies and horizons? Is the intermediary funding long assets with short money? Is the adjustment appearing in the unbuilt rather than the built? Have revenue quality and credit quality stopped being independent? Is anyone borrowing against collateral marked to the thing being financed? Is the exposure sized, secured, marked and supervised? Does recovery machinery exist, and has any of it been tested? Seven partial matches, used as instruments, triangulate. One total match, used as a verdict, is a bet on somebody's contested reconstruction of events they were not present for. And they disagree with each other, which is the point. The 1840s say the buildout completes regardless. 1873 says the financier can break long before the assets. Insull says leverage above a sound business can destroy it anyway. Shale says vast losses can be absorbed when properly structured and watched. Telecom says similar losses turn lethal once reporting and credit become entangled. Any one of those alone gives you a confident and incomplete view.
Is the mistake getting smaller?
One caution first, because this is where memos like this overreach. What the August 2026 announcements establish is directional. Nvidia signed memorandums of understanding with Apollo, BlackRock, Blackstone, Brookfield, Goldman Sachs and KKR around independent compute-financing platforms, with an ambition to mobilise more than $500 billion of third-party capital. The institutions are to underwrite projects independently. Nvidia may provide residual-value support of up to 25% in some cases. These are memorandums, subject to final agreements. They do not establish that exposure will sit off Nvidia's balance sheet, that structures will be liability-matched, that the debt will be investment grade or held to maturity, or that any historical failure mode has been closed. So what follows separates design intent from demonstrated fact. Entangling revenue and credit — the design looks deliberately better. Not yet demonstrated. Independent third-party underwriting and capped residual-value support aim directly at the mechanism that tied Lucent's reporting to its customers' solvency. Whether executed agreements achieve it cannot be known until they exist and are disclosed. Maturity mismatch — the design looks better. Institutional infrastructure capital is long-duration by construction, which is the right money for a long-lived asset, and a real improvement on Cooke. It holds only if the vehicles are funded as described. Creditor diversification — open. Britain's creditor position survived because it was spread widely. A compute-credit position concentrated in one technology, one geography and a short list of counterparties does not yet have that property. Counterparty concentration — appears repeated. The frontier tenant list is short. The stronger claim, that a majority of measurable AI revenue sits with a few loss-making labs, depends entirely on the denominator you choose and should be published with it. Note also that private companies can be audited without publishing accounts, so 'unaudited' is the wrong word for 'not publicly disclosed.' Stacked structures — present in form, far better disclosed. Contracted capacity outside the balance sheet, and vehicles borrowing against marked collateral, both persist. Disclosure is vastly better than in 1932. Sized, secured, marked, supervised — largely untested. This is the shale standard and the most useful checklist available. For compute credit, none of the four has been demonstrated at scale, and no supervisory apparatus yet has a name for the problem or a review cycle to catch it. Recovery machinery — not built. No equivalent statutory regime. No tested repossession or re-tenanting path. No liquid secondary market in facility-plus-power bundles. No public case of an AI facility being re-tenanted out of distress, though that is a hard thing to prove absolutely. The honest bottom line, at the strength the evidence supports: Some of the structures now being proposed appear deliberately designed to reduce direct vendor-financing risk, while potentially spreading compute exposure across a far broader institutional capital base. Whether that recreates an Insull-style transmission is not established. It is the open question, and it is the right one to watch.
Where the repertoire runs out
Three propositions. Theses, not findings. The efficiency clock. The claim that no previous buildout had an input whose unit cost collapsed by orders of magnitude while the buildout ran is provocative and not yet tested against a systematic survey. If it holds, it cuts both ways — expanding the market while obsoleting the specific collateral in the specific vehicle. Absorption speed. Dark fibre waited years for demand. The proposition that current AI compute is absorbed roughly as fast as it can be energised is widely asserted, and would mean the overhang risk is about vintage rather than quantity. It needs a utilisation dataset to become a finding. Sovereign timing. Rules and buildout appear to be under construction in parallel rather than in sequence. If so, that is the one respect in which this cycle outperforms its predecessors, because the response may arrive before the failure.
Compression
The consensus has largely settled on 1873, and for good reason. It is probably the closest historical analogue we have: a genuine technological breakthrough, a massive physical buildout, a credit shock rather than a collapse in end demand, and a financial intermediary that failed before the underlying infrastructure did. But the analogy is also incomplete. In 1873, the United States was the capital-importing emerging market. The shock originated in Vienna, European capital retreated home, and Britain sat at the center of the system as creditor, reserve-currency issuer, and deepest capital market. In that sense, the United States today looks more like Britain than America in 1873. Except that it is also the place where the infrastructure is being built. That combination has no clean historical equivalent. And that is the larger problem with historical analogies. They become much cleaner after the fact. Once the ending is known, historians can assemble tidy causal chains that were far less obvious to the people living through them. At the time, participants were arguing about everything from grain harvests to traffic forecasts, many of which turned out to be spectacularly wrong. So I think the useful lesson is narrower. Each historical episode gives us a mechanism we can actually inspect: how creditors diversify risk, where maturity mismatches sit, who absorbs the adjustment when expected capacity is not built, how revenue and credit become linked, how much leverage sits on top of otherwise sound businesses, how exposures are sized and secured, and whether the financing structure assumes that some tenants will eventually fail. Look at today through those mechanisms and something interesting emerges. The structures being built around AI infrastructure appear deliberately designed to avoid some of the failure modes that destroyed equipment makers in 2001, while simultaneously distributing risk across a much broader set of capital providers. We do not yet know what that broader holder base will mean when the cycle turns. And that is really the point. History cannot tell us how this ends. But it can help us identify which mechanisms matter, which assumptions are fragile, and which questions are still genuinely open. Those are the questions worth answering.
Article sections
The sixteen source sections preserved in document order.
Seven historical instruments
Seven partial historical matches used to triangulate financing and infrastructure risk without predicting a single ending.
Instrument one - the creditor's seat
Britain's capital exports from the 1850s through the 1870s show that a creditor can absorb borrower crises when losses are diversified across borrowers, countries, and decades.
The creditor can survive the borrower's crisis when exposures are broadly diversified rather than avoided.
Check whether compute-credit exposure is spread across borrowers, geographies, technologies, and horizons.
Victorian Britain financed infrastructure abroad, while the United States is financing infrastructure built largely at home.
Instrument two - the intermediary
Jay Cooke & Company's 1873 failure shows that a financing intermediary can break before the physical infrastructure or end demand fails.
Long-lived assets financed with short-lived money can trigger a funding crisis at the intermediary before operating assets deteriorate.
Check maturity profiles, commitments written against capital not yet raised, repricing risk, and the final holders of the paper.
The 1873 regime lacked a central bank, used inconvertible greenbacks, relied on enormous land grants, and placed America in the debtor's seat.
Instrument three - the unbuilt
The British railway buildout of the 1840s shows that the adjustment may appear in authorized projects never started rather than defaults on operating infrastructure.
Infrastructure completion and investor repayment are independent outcomes; real demand can be the engine of overbuilding.
Watch contracted capacity that quietly fails to commence, distinguishing signed plans from concrete construction.
Partly-paid shares with capital calls created a household-ruin channel that has no close modern equivalent.
Instrument four - the booking
Telecom vendor financing from 1996 to 2001 shows how revenue quality and credit quality can become entangled when suppliers underwrite their own customers.
Financing, side agreements, and doubtful collectibility can create incentives and opportunities for aggressive revenue recognition.
Check whether customer exposure sits on suppliers' own accounts or is independently underwritten, and whether plans assume a gradual closing of the funding window.
Telecom carriers often had little revenue, while frontier AI counterparties can have large and rapidly growing revenue alongside large losses.
Instrument five - the structure
Samuel Insull's electrification pyramid shows how leverage and cross-obligations above a functioning business can destroy an otherwise real infrastructure investment.
Asset quality and financing quality are separate questions; a sound operating asset does not protect investors from a fragile capital structure.
Check for entities borrowing against holdings marked to the financed asset and cross-obligations that cause nominally separate vehicles to fail together.
The Great Depression also damaged operating revenues, and modern disclosure removes much of the opacity that enabled the pyramid.
Instrument six - containment
US shale from 2010 to 2020 shows that large losses can remain non-systemic even with meaningful bank exposure when credit is sized, secured, marked, and supervised.
Containment is not the absence of financial-system exposure; it is exposure with limits, collateral, valuation discipline, and supervisory review.
Check portfolio share, security, marking frequency, supervisory vocabulary, and review cycles.
Shale sells an undifferentiated commodity into a global price; its containment lesson transfers more readily than its demand analysis.
Instrument seven - the machinery
Aircraft finance since 1994 shows what mature recovery machinery looks like when structures assume tenant failure and are designed to work anyway.
A mature asset class relies on tested recovery machinery, not confidence that borrowers will never fail.
Check for statutory protections, liquidity facilities, overcollateralization, repossession paths, re-tenanting capability, and secondary markets.
Aircraft can enter a global leasing market after repossession; data centers are immovable bundles tied to a building, power contract, jurisdiction, and local demand.
British capital export, 1850s-1870s
Britain's creditor position and diversified overseas investment provide the first diagnostic instrument.
Panic of 1873
Jay Cooke's suspension and the transatlantic credit shock provide the intermediary-failure instrument.
British railway buildout, 1840s
Authorized but unbuilt projects and losses on partly-paid shares provide the unbuilt-adjustment instrument.
Telecom buildout, 1996-2001
Vendor financing and aggressive recognition provide the revenue-credit entanglement instrument.
Insull electrification pyramid, 1892-1935
Holding-company leverage above operating utilities provides the stacked-structure instrument.
US shale cycle, 2010-2020
Large sector losses with supervised and secured bank exposure provide the containment instrument.
Aircraft finance, 1994-now
Bankruptcy-tested collateral and recovery structures provide the recovery-machinery instrument.
Historical and present-day role comparison
A deliberately bounded comparison of four economic seats across six source-grounded dimensions.
Capital position
Whether the economy is primarily importing savings or supplying capital to others.
Capital-importing industrializer
Global creditor and capital exporter
Reserve-currency creditor and domestic construction site
Capital-importing, state-directed industrializer
Reserve-currency position
Whether the economy issues the dominant reserve currency and anchors the deepest capital market.
Yes
Buildout location
Where the infrastructure financed by the relevant savings is physically constructed.
Primarily domestic railroads
Largely overseas infrastructure
Primarily domestic AI infrastructure
Primarily domestic industrial infrastructure
Shock origin
Where the initiating financial disruption or withdrawal begins.
Vienna and European capital withdrawal
Losses transmitted from overseas borrowers
Unknown; current cycle has not resolved
Not asserted; analogy used only for debtor-side role
Creditor diversification
How broadly creditor risk is distributed across borrowers, countries, technologies, and time.
Concentrated dependence on foreign inflows
Broad across issuers, countries, and decades
Open question; compute exposure may be concentrated
Not evaluated in the article
Financial safety machinery
Availability of central-bank liquidity, supervision, disclosure, and tested recovery structures.
No central bank and limited machinery
Deep markets but historically limited modern supervision
Central bank, modern disclosure, but untested compute recovery
Modern state-directed financial system; not stretched by the article
The article separates design intent from demonstrated fact when assessing proposed AI compute-financing structures.
Revenue-credit entanglement
Design appears deliberately better through independent underwriting and capped residual-value support, but execution is not yet demonstrated.
Maturity mismatch
Long-duration institutional infrastructure capital is the right design for long-lived assets, provided final vehicles are funded as described.
Open: the holder base may broaden while remaining concentrated in one technology, geography, and short counterparty list.
Counterparty concentration
Appears repeated: the frontier tenant list is short, while stronger revenue-concentration claims depend on a disclosed denominator.
Sized, secured, marked, supervised
Largely untested for compute credit at scale, with no established supervisory vocabulary or review cycle.
Recovery machinery
Not built: no equivalent statutory regime, tested re-tenanting path, or liquid market for facility-plus-power bundles.
Source-attributed quantitative claims
Quantitative statements preserved as claims attributed to the source article; inclusion does not imply independent verification unless a citation is linked.
Between 1866 and 1873 American railroads laid 35,000 miles of new track
Between 1866 and 1873 American railroads laid 35,000 miles of new track.
The article gives 89 of 364 railroads as bankrupt, alongside more than 100 bank failures and 18,000 business failures over two years
The article gives 89 of 364 railroads as bankrupt, alongside more than 100 bank failures and 18,000 business failures over two years.
In 1846 Parliament passed 272 Acts covering about 9,500 miles of proposed railway route with authorized capital around £132 million
In 1846 Parliament passed 272 Acts covering about 9,500 miles of proposed railway route with authorized capital around £132 million.
British railway investment reached £30 million in 1846 and peaked at £44 million in 1847, almost 8% of GDP
British railway investment reached £30 million in 1846 and peaked at £44 million in 1847, almost 8% of GDP.
Telecom industry capital spending rose from about $56 billion in 1997 to roughly $120 billion in 2000
Telecom industry capital spending rose from about $56 billion in 1997 to roughly $120 billion in 2000.
Across nine telecom suppliers, combined customer-financing exposure reached about $25
Across nine telecom suppliers, combined customer-financing exposure reached about $25.6 billion by the end of 2000.
The SEC found approximately $1
The SEC found approximately $1.1 billion of improperly recognized Lucent revenue.
US shale generated roughly $300 billion of negative free cash flow between 2010 and 2019 and impaired more than $450 billion of invested capital
US shale generated roughly $300 billion of negative free cash flow between 2010 and 2019 and impaired more than $450 billion of invested capital.
The article reports more than 190 shale bankruptcies while production more than doubled and peaked near 13 million barrels per day
The article reports more than 190 shale bankruptcies while production more than doubled and peaked near 13 million barrels per day.
The 2015 Shared National Credit review reported $276
The 2015 Shared National Credit review reported $276.5 billion of oil-and-gas commitments, about 7% of a $3.9 trillion portfolio.
The article says August 2026 memorandums of understanding paired Nvidia with six financial institutions around independent compute-financing platforms targeting more than $500 billion of third-party capital
The article says August 2026 memorandums of understanding paired Nvidia with six financial institutions around independent compute-financing platforms targeting more than $500 billion of third-party capital.
The article says Nvidia may provide residual-value support of up to 25% in some proposed structures
The article says Nvidia may provide residual-value support of up to 25% in some proposed structures.
Frequently asked questions
Questions and answers derived from the article's claims, distinctions, and seven-instrument method.
What is the article's central thesis?
Answer 1
History cannot predict how the AI infrastructure cycle ends, but historical episodes can isolate mechanisms that investors and regulators can inspect now.
Why does the article call the 1873 analogy a delusion?
Answer 2
The analogy is sophisticated but places the modern United States in the role of 1873 America even though today's United States more closely occupies Britain's creditor and reserve-currency position.
What role did America occupy in 1873?
Answer 3
The article describes America as a capital-importing industrializer whose infrastructure depended substantially on European savings.
What role did Britain occupy in 1873?
Answer 4
Britain held the reserve currency, the deepest capital market, and the creditor position that financed infrastructure across many countries.
Why can the Panic of 1873 not be transferred directly to today?
Answer 5
Its cause is disputed, it preceded the Federal Reserve, it operated under a contested monetary regime, and Northern Pacific economics depended on a land grant without a modern equivalent.
What is wrong with matching the present to one historical year?
Answer 6
Historical causal chains are reconstructed after outcomes are known and remain disputed, so treating one episode as a solved template creates false precision.
What should be transferred from history instead of an ending?
Answer 7
The transferable unit is a mechanism paired with an observable diagnostic question and an explicit boundary where the analogy stops working.
What does the creditor's-seat instrument test?
Answer 8
It tests whether losses are diversified across borrowers, countries, technologies, and time horizons rather than concentrated in a narrow compute-credit position.
What does the intermediary instrument test?
Answer 9
It tests maturity mismatch, commitments against capital not yet raised, repricing risk, and whether financiers can fail before the underlying infrastructure.
Why is real demand not a rebuttal to overbuilding?
Answer 10
The article argues that real demand attracts the capital that makes the buildout possible and can therefore power the overshoot rather than prevent it.
What did telecom vendor financing reveal?
Answer 11
It revealed the danger of suppliers reporting sales to customers whose ability to pay the suppliers were themselves underwriting.
How does shale refine the meaning of containment?
Answer 12
Shale shows that containment can coexist with bank exposure when that exposure is modest, secured, periodically marked, and supervised.
Why is aircraft finance the most reliable instrument?
Answer 13
It is a live, mature market with legal and financial machinery explicitly designed to keep working through airline bankruptcies.
What remains untested about AI compute finance?
Answer 14
Creditor diversification, counterparty concentration, scaled supervision, tested recovery paths, a secondary market for facility-plus-power bundles, and actual performance of proposed financing vehicles remain open.
What is the article's bottom line on current proposals?
Answer 15
Some proposals appear designed to reduce direct vendor-financing risk while distributing exposure more broadly, but whether they create new transmission channels is not established.
Glossary of historical mechanism analysis
Terms used by the article to analyze infrastructure buildouts, financing structures, containment, and recovery.
Historical analogy
A comparison that maps features of a past episode onto a present situation; the article treats it as a diagnostic aid rather than a prediction engine.
Repertoire of mechanisms
A set of partial historical instruments, each isolating a failure mechanism, an observable check, and a boundary.
Creditor's seat
The position of the capital provider whose savings finance infrastructure and whose resilience depends on diversification and structure.
Funding long-lived assets with shorter-duration liabilities that reprice or must be withdrawn before asset cash flows arrive.
Unbuilt adjustment
A contraction that appears as authorized or contracted projects never commencing rather than failures of already operating assets.
Vendor financing
A supplier's financing of customers purchasing its products, potentially linking customer credit quality to reported revenue quality.
A condition in which sales quality depends on credit risk that the seller itself is underwriting.
Stacked financing structure
A hierarchy of holding companies or vehicles whose leverage and cross-obligations sit above operating assets.
Contained exposure
Credit exposure that is sized, secured, marked, and supervised rather than absent from the financial system.
Reserve-based lending
Energy lending secured against reserves and periodically redetermined as reserve values and commodity conditions change.
Legal, financial, and operational arrangements designed to preserve creditor recovery when a borrower or tenant fails.
Enhanced equipment trust certificate
An aircraft-finance structure with tranched claims, collateral, liquidity support, and bankruptcy-specific recovery protections.
Residual-value support
A capped commitment intended to absorb part of a financed asset's decline in residual value.
Re-tenanting
Replacing a failed facility tenant with a new operator able to use the same location, power contract, and installed equipment.
Smaller mistake
The article's objective of reducing the damage from inevitable overbuilding through better financing, supervision, and recovery design.
How to analyze an infrastructure cycle with seven historical instruments
Apply each mechanism independently, record observable evidence, and triangulate rather than selecting one historical ending.
Check whether compute-credit exposure is spread across borrowers, geographies, technologies, and horizons. Record the evidence, then preserve this boundary: Victorian Britain financed infrastructure abroad, while the United States is financing infrastructure built largely at home.
Check maturity profiles, commitments written against capital not yet raised, repricing risk, and the final holders of the paper. Record the evidence, then preserve this boundary: The 1873 regime lacked a central bank, used inconvertible greenbacks, relied on enormous land grants, and placed America in the debtor's seat.
Watch contracted capacity that quietly fails to commence, distinguishing signed plans from concrete construction. Record the evidence, then preserve this boundary: Partly-paid shares with capital calls created a household-ruin channel that has no close modern equivalent.
Check whether customer exposure sits on suppliers' own accounts or is independently underwritten, and whether plans assume a gradual closing of the funding window. Record the evidence, then preserve this boundary: Telecom carriers often had little revenue, while frontier AI counterparties can have large and rapidly growing revenue alongside large losses.
Check for entities borrowing against holdings marked to the financed asset and cross-obligations that cause nominally separate vehicles to fail together. Record the evidence, then preserve this boundary: The Great Depression also damaged operating revenues, and modern disclosure removes much of the opacity that enabled the pyramid.
Check portfolio share, security, marking frequency, supervisory vocabulary, and review cycles. Record the evidence, then preserve this boundary: Shale sells an undifferentiated commodity into a global price; its containment lesson transfers more readily than its demand analysis.
Check for statutory protections, liquidity facilities, overcollateralization, repossession paths, re-tenanting capability, and secondary markets. Record the evidence, then preserve this boundary: Aircraft can enter a global leasing market after repossession; data centers are immovable bundles tied to a building, power contract, jurisdiction, and local demand.
Source diagrams
Seventeen substantive diagrams embedded in the subscriber email and associated with their article sections.
Diagram: The 1873 Delusion
Source-provided diagram associated with the article section 'The 1873 Delusion'.
Diagram: The roles are the wrong way round
Source-provided diagram associated with the article section 'The roles are the wrong way round'.
Diagram: What 1873 can and cannot tell you
Source-provided diagram associated with the article section 'What 1873 can and cannot tell you'.
Diagram: Why the matching game fails at the root
Source-provided diagram associated with the article section 'Why the matching game fails at the root'.
Diagram: What history is for
Source-provided diagram associated with the article section 'What history is for'.
Diagram: Instrument one — the creditor's seat
Source-provided diagram associated with the article section 'Instrument one — the creditor's seat'.
Diagram: Instrument two — the intermediary
Source-provided diagram associated with the article section 'Instrument two — the intermediary'.
Diagram: Instrument three — the unbuilt
Source-provided diagram associated with the article section 'Instrument three — the unbuilt'.
Diagram: Instrument four — the booking
Source-provided diagram associated with the article section 'Instrument four — the booking'.
Diagram: Instrument five — the structure
Source-provided diagram associated with the article section 'Instrument five — the structure'.
Diagram: Instrument six — containment
Source-provided diagram associated with the article section 'Instrument six — containment'.
Diagram: Instrument seven — the machinery
Source-provided diagram associated with the article section 'Instrument seven — the machinery'.
Diagram: Why several beat one
Source-provided diagram associated with the article section 'Why several beat one'.
Diagram: Is the mistake getting smaller?
Source-provided diagram associated with the article section 'Is the mistake getting smaller?'.
Diagram: Where the repertoire runs out
Source-provided diagram associated with the article section 'Where the repertoire runs out'.
Diagram: Compression
Source-provided diagram associated with the article section 'Compression'.
Selected supporting sources
A curated set of directly relevant public sources named by or supporting specific mechanisms in the article.
Foreign Portfolio Investment When the United States was an Emerging Market
Federal Reserve historical analysis named by the article.
Lucent Settles SEC Enforcement Action Charging the Company with $1.1 Billion Accounting Fraud
SEC release supporting the article's Lucent revenue-recognition discussion.
Shared National Credits Review Notes High Credit Risk and Weaknesses Related to Leveraged Lending and Oil and Gas
OCC release supporting the article's oil-and-gas credit exposure figures.
11 USC 1110: Aircraft equipment and vessels
Current statutory text supporting the article's aircraft-finance discussion.
United States
Britain
China
Austria