How Countries Go Broke: The Big Cycle

Chapter 9 condenses 80 years of global economic and political history to show how the Big Cycle repeats through war, debt, innovation, and renewal. Beginning after the U.S. Civil War, he traces how the United States and other powers move through familiar debt and monetary patterns: war-driven borrowing, inflation, devaluation, postwar productivity booms, speculative bubbles, and eventual crises that reset domestic and world orders.

After 1865, the U.S. emerges from civil conflict with heavy debts and suspends gold convertibility—the ability to exchange paper money for gold at a fixed rate. Once stability returns, the Second Industrial Revolution fuels rapid productivity growth and widening wealth gaps as railroads, steel, oil, and electricity transform economies. Recurrent financial panics—1873, 1893, and 1907—reveal the need for a central bank, leading to the creation of the Federal Reserve in 1913. Rising inequality and political tension intensify left-right conflicts both in the U.S. and abroad.

World War I breaks the global order, elevating the U.S. to creditor status while leaving Europe indebted and unstable. The 1920s bring another burst of innovation and debt-fueled exuberance that culminates in the 1929 crash and the Great Depression. Roosevelt’s policies follow the classic crisis playbook—devaluation, capital controls, and suspension of gold convertibility—to ease debt burdens.