Pushkin Pushkin from Pushkin Industries. This is Deep Background, the show where we explore the stories behind the stories in the news. I'm Noah Feldman. As regular listeners know, on this season of Deep Background, we've been focusing on power in its many different forms. We've talked a fair amount about power and global politics. We've talked about power and publishing. But until now we haven't had a direct conversation about one of the most important seats of power in the United States and indeed in the world. Wall Street Today's guest is here to help us fill that gap. Zachary Carrabelle is a historian and author who spent years working on Wall Street, both as head of Global Strategies That Investment and as president or Fred Alger and Company. He's the author of a new book called Inside Money, Brown, Brothers, Harriman and the American Way of Power. The book charts the long history of this particular investment bank, suggesting that its ability to survive for two hundred years of boom and bust cycles comes from its refusal to over extend itself and to take on too much risk, a lesson that he believes Wall Street today could learn a lot from Zach is the perfect person to talk about power, Wall Street history and where we're going in the future. Zach, thank you so much for being here. Zach, you are a polymathic and unusual person, and in a sense, you're the ideal person to have written this new book because you have a PhD in history, You've never stopped writing books of history, no matter what other thing you've been doing. You've also had several different careers in and around finance, and that really means that if anyone were going to write a book that was going to be, in effect a history of power in American capitalism, it would be you. I read your new book Inside Money, Brown, Brothers, Harriman and the American Way of Power as really that a book that tells the story of capitalism in America through the eyes of one venerable firm. What gave you the idea to do this? That's exactly what the book is, and look narcissistically, it is the perfect culmination of a lot of what I've done for the past twenty years, and that it brings together the academic strain and the financial investment career strain into one delightful four hundred plus page package. It ended up, I think, in a weird way, being a lot more interesting to me writing the book and really thinking through the nature of American capitalism and the nature of American power over two centuries, and the sort of arbitrariness of one definition of capitalism that has emerged in the past thirty years versus multiple different capitalisms that could just as well have predominated and at earlier points in the past did And that you know, we're constantly in the position of remaking our culture and remaking what we think of our systems. And then a weird way, this book became pointed in that direction in a way that I didn't actually expect when I sat down to write the book. I was going to ask you that which came first, the chicken or the egg question? Did you pick your topic this bank and its history, and then from there you realize that it was emblematic or were you looking for some concrete story to tell that would enable you to paint the big canvas. Yeah, and it was definitely the latter. I did not set out to write a book about Brown Brothers Harriman. I did sit out to write a book about the crucial role of money making American power in the nineteenth century, and then how the men and they were all men, and they were all white men, and they were mostly Protestant white men. How that cohort made the global system of the twentieth century, and where that leaves us today. So that's kind of the arc I wanted to look at. And they're the perfect aperture for that art. They are maybe the only firm that could actually tell that story from the get go to the present, because first of all, they're the only one that has been around for two plus centuries, which doesn't make them worth writing about. Right, living long is not living necessarily interesting. I really thought at one point, like, how am I going to make a group of stayed bankers, particularly in the nineteenth century, who wanted to be stayed, who didn't want to be in the news, who spent a lot of their history celebrating the fact that every day they woke up and their name was not in the papers as a good day. You know, how do you make that interesting? The arc I thought was interesting. Turned out I think that they're a lot more interesting than even I thought going into it. I share with you the sense that there's an alchemy here. You know the book doesn't. If you were not the author of the book, I don't think I would have picked it up, because I would have thought, this is a great topic, But how the world could you tell it in a way that is in fact engaging? But because I've read your other books, I knew you would be able to find a way to do that. What was the trick? And for listeners who are thinking, why in the world would I be interested in this, I'm definitely interested in the history of capitalism in the nature of power, But why would I want to hear it told through these folks? What for you were the features of those cautious state people who, as you show, we're trying to be the ones always to avoid going under What is it about them that you were able to make interesting? So, first of all, it turns out Brown Brothers was present at the creation of almost everything vital in American certainly economic history and in many ways just American history. They're just in the back row right, They're they're like the zelle. They're in the second row, back left, kind of looking like a bank, and they don't really want to be the story and they don't want to be the picture. But without them. There's no story and there's no picture, and there is a lot of drama in the creation of a nation, and the creation of a nation like the United States, which kind of emerges out of nowhere in the nineteenth century, graced with lots of resources but very little invested capital, and you have these this firm like Brown Brothers that essentially creates the paper money system that I think is a huge differential, right, It's partly what makes the United States the United States. Is this incredibly chaotic, liquid world where if you had a hope and a dream, it was way easier to get money because it was paper. It wasn't people, it wasn't gold, it wasn't land. And Brown Brothers is kind of at the epicenter of this, you know, the the alchemists who were really mindful of the destructive potential of their alchemy and not animated by greed and not animated by personal gain at the expense of public good. I actually found that that section of the book completely gripping, and I learned a huge amount from it. And I wonder if you'd spend just a moment telling listeners just the short version of this. I mean, I guess I knew in a general sort of way that Fiat backed currency greenbacks were really a product of the Civil War in some general way. And I also knew from working on my own interest in the history of the Constitution, that in the early years of the Republic, money was very scarce because there was still a sense that we had to be dependent on gold and silver, and there wasn't that much gold and silver in North America relative to what there was in Europe, and so it was always hard to get hold of money, and so as a consequence, there was always a lot of need for some other mechanisms of credit. What you show so beautifully in the book is that there was an interim solution there, and that that solution we've somewhat forgotten today was letters of credit. Say a word about what that is and why it matters, and then from there maybe we can talk about the metaphoric relationship that that has to the way the capital moves today in the world. So this is one of these things that narratively I found challenging the way, like a theoretical physicist can find it challenging to write a popular story of that in a way that doesn't put people to sleep. You know, the idea of writing at great length about letters of credit was kind of a nonstarter narratively. Nonetheless, just like the strong and weak forces of an atom, trying to explain that as a pretty crucial binding force for society seems essential and completely overlooked in our story of what essentially makes the United States as affluent and powerful as it was. So for much of the nineteenth century, you either had too little money or too much money, too much currency. People needed money, so they're all these banks issuing a lot of currency, and it was worth about as much as it was until it wasn't. And that's why you had every twenty years in the nineteenth century, you have a financial crisis, a panic in eighteen nineteen, eighteen thirty seven, eighteen fifty seven, eighteen seventy three, eighteen ninety three, nineteen o seven, of course nineteen twenty nine. And behind the scenes in the system you have a very few number of players at which Brown Brows was essential, who make sure that the trains run on time. Literally, I mean they helped build the first passenger railroad, the BNO, and they helped create the transatlantic shipping system so that people knew that if they made stuff and grew stuff, that someone would buy the stuff. And letters of credit were the connective tissue, first between cotton growers in the South and people bought the cotton in England and turned it into cloth, and then for all sorts of trade, every single trade, and without which there's no system, right, there's no assurance that people will be able to buy and sell stuff. And the amount of cher liquidity in the United States did lead to these incredible periods of capital creation and booms, and then it led to these incredibly tumultuous bus much worse than anything we saw in two thousand and eight two thousand and nine. I mean, these panics eviscerated the financial system, and then you had these bankers at the center of it, of whom Brown Brothers were the most important, making sure that in spite of everything, there would be trade, there would be goods. Some of it was hugely morally problematic, right, the cotton trade was on the backs of enslaved men and women, and Brown Brothers was totally complicit in that, and a lot of which was basically helping the creation of the American economy and the creation of the United States. And these letters were what you used as kind of a trusted I know that if I part with my goods, someone on the other side, the other side the Atlantic, will buy them, and if I part with my money, I'll get my goods. And these letters of credit were that connective tissue. And we're essentially, if not invented by Brown Brothers, perfected by them and then used by other banks and other financial intermediaries. First of all, that was a fantastically clear explanation, so thank you. But I think you do so well in the book to show that Brown Brothers played a major role in answering the question who can you trust? You know that basically, unless there's an answer to that question where a person attached, a financial system cannot gain the kind of trajectory that it needs to get flowing. Flow is everything, and if you don't trust people, you can't get flow with the scale that is necessary. Reading that, one starts immediately to feel the question of what about today? Where does such trust lie in the system today, if at all, should it exist to a greater degree than it in fact does? And what is the presence or absence of trust in our current system? Tell us about where things stand, you know, So the interesting thing is, as you highlight their word was their bond. The reputation was key a lot of the letters at Alexander Brown in the first thirty years of the nineteenth century writes to his four sons, who are the Brown brothers? Heads? Brown brothers? You sound like some distillation of Ben Franklin and Poor Richard's Almanac, and Polonius and Hamlet and every kind of homily and cliche that every parent has ever given to every child. Don't take risks that are beyond your means. Make sure you know the people you're in business with. Its trust is easily lost and hard to gain. And they kind of live this and breathe it because they recognize that in a world without a lot of trust, those things are unequivocally true. What's really fascinating about today is I don't think we have fully appreciated what a radical break the past fifty years have been globally in terms of how human beings conceive of money, right, and that the idea that a paper promise is worth more than the paper it's written on was a completely alien concept for most societies for most of history and still makes people, you know, radically uncomfortable with the notion of really, at the end of the day, if I give you a dollar, whether it's digital or paper, it's a pretty abstract thing. And the fact that we say that it has values because all of us have kind of collectively decided that it has value, not because it actually has any intrinsic value. And cryptocurrency dramatizes this to an incredible degree exactly, which is also why I'm really impatient with a lot of crypto skeptics. Not that I'm a crypto bull, I'm just saying the crypto skeptics say, oh, come on, it's not worth anything, right, without recognizing that frankly, we live in a world that there's no intrinsic value to most things. You know, it's the value we ascribe to it with intermediars who we think will be good for it. And in many ways, you know, us power today, as cemented by the global possession of the dollar, because there needs to be some common means of exchange, relies on a lot of faith in the system. That makes a lot of people uncomfortable, but it is the product of several hundred years of evolution, of which the paper money part of the nineteenth century is like the first chapter of which we're now living. In the later chapters, the question of trust isn't interesting, and that like, I don't necessarily trust my bank in the sense of I think they're good people, But I trust my bank in the sense of I clearly believe that if I put money in the bank, they're good for it. And that's a combination of a little bit of a regulatory framework, right new deal law is saying your deposits are insured, and a little bit of you know, I don't have any reason to believe otherwise, and I need that, like we need that to function. And in an early version, you need something like Brown Brothers, which is surely their reputation. So I don't think trust has gone away. We just don't think of it in quite the same way. And arguably it's a slightly different phenomenon. Right, I mean, we begin with the idea that I know you, and I trust you because I know you to be the kind of person based on my experience of you, whom I can rely on. Then you get a firm like Brown Brothers that begins to institutionalize that trust. I may not know you, but I know your brand and I know that your bank is committed to not going under, and so in that sense, I trust you. So that's a bit of an institutionalization of the trust away from one person to an institution, but it's still a small institution, and it's still a family owned institution. What you have today, though, is a very different stage in the evolution, where the trust is almost almost not at all in the institutions and almost all in the governmental structures that create the conditions where we think that the institution will follow the rules because otherwise people would go to prison. And that's a different kind of institutional trust. It's still trust in a set of institutions, but they're less the institutions, the financial institutions themselves, and more the regulators of those institutions. So you're totally right about the regulatory framework and that being an essential component to people's trust in the financial system. This is an explicit in the book. It's certainly explicit in a lot of what I've written about. I think regulation is necessary but not sufficient, right, and some of the regulatory craze today in the Biden administration this is a whole other conversation, but I think it treats regulation as sufficient and necessary. One of the lessons of a Brown Brother's culture is that you need a culture. Right. You can regulate behavior, but you can't really regulate culture, or you cannot create a regulatory framework that leads companies in the near and I think even the mid term to embody a different culture. What's fascinating about an earlier version of American capitalism was it was an an internal culture that recognized the ineluctable bond between private gain and public good, and that individuals and collectives that were private. It was part of a narrative of we I eat the individual, and the company is responsible to the collective because ultimately, we the individual in the company can't thrive unless the collective in which we're embedded also thrives. That was a non regulatory ethos, and it led to some of the behavior that regulation seeks to force. So it was internal guardrails rather than external guardrails. And I happen to believe in part of the point of the book is culture matters, and without those internal guardrails, all the external guardrails in the world, they can create an adversarial culture where behavior is constrained, but they cannot easily create positive behavior, they can curtail negative behavior. We'll be right back. Let me ask you a question, Zach, about a theme that is already in the title of your book. There's a more ultiple meaning to the title inside Money. But on any of those possible meanings of that phrase, there's an idea that there is an inside and an outside to money, that there are elites who understand what's going on and who have a lot of power and the capacity to pull strings, and then there's the rest of us who are on the outside. Maybe our noses are pressed up against the glass. Maybe we don't even know where the glass is to press our nose up against it, And sociologically that remains true. But arguably there is a democratizing impulse in finance today that it's not the first time. You know, There's been lots of other moments when the public got interested, and sometimes that was a sign that there was about to be a crash, but we certainly seem to be in one now where people talk about gamification of trading, They talk about how easy it is to open a coin base account, they talk about how easy is to trade on platforms like robin Hood, and then you actually have the crazy phenomenon of activists whose nature of their activism is to boost up stocks that the insiders agree aren't very valuable, and that frankly, any rational person would agree aren't very valuable, and they're experiencing it as a kind of thrill of the outsiders. And in that sense, it's a populist or democratizing with a small d mode of finance. What do you think about that when you read about populist impulses to beat the insiders at their own game, yea? Or when you read people saying, you know what's wrong with finances, that it's in the hands of the few. It ought to be in the hands of the many, right or wrong? Do you feel some sense of fear when you hear that? Do you think, oh my god, these poor people are gonna hurt themselves. Nope. I think I celebrate almost all of that, but with the cautionary reality of people will be harmed by that, just as they were harmed by the system that they're being rejected. You know, revolution is often necessary, but it's not very balanced. I mean, I would prefer for evolutionary change. I think we'd all be healthier for it, because there'd be less collateral damage along the way, So a populist opening, you know, that's a little less burn it all down, burn baby burn. I mean there's an element of the the whole thing that went on with Game Stop, and there's an element with Robin Hood that can approach the burn baby burn attitudes of the late sixties, like the system is irremediably corrupt, so we should just blow it up and start it again. I'm not really into that one, but but it's so interesting you're saying that because I have the exact opposite instinct. I look at Game Stop and I say, boy, in the sixties, when they wanted to burn it all down, they didn't say it and let's do it by trading and making money. Right. There was a kind of utopian idealism associated with being anti capitalist. Today, capitalism is so much the you know, the air we breathe, the water we drink, that the burn it down comes in the form of let's do a trade, right, let's let's I mean that you can't get closer to the ultimate victory of capitalism than if the people who want to break capitalism want to break it by capitalist means. They're not trying to use the master's tools to deconstruct the master's house. They're trying to use the master's tools to become the masters. Neither more nor less, that is definitely true. I do think more inputs, more egalitarian, more access to more capital for more people who can make their own choices, that I find a good thing, you know, And the same way that unlocking capital in the nineteenth century was nett I think a better thing than not led more people to have what we would consider to be a middle class life. It's the story of what's going on in Asia. You know, it's like unlocking human capital and actually creating a capital system. But this honestly is a philosophical discussion because it leads to answers in action of kind of the cup half full, cup half empty. Right, If you somewhat celebrate these moves, you have a different attitude. If I'm at the SEC right now and I think both game stop and crypto and the kind of unregulated mass of financial activity is unleashing destructive forces that need to be bottled, You're going to have a particular regulatory and or philosophical response if you think that they are inherently positive developments and that they would create more inclusivity. What wasn't very elite to system you're going to think in terms of regulation and guardrails very differently. So in that sense, I think the where you sit visa VI these developments shapes what kind of policies and what kind of actions you take in the present. Really, intimately, I'm really interested to hear you say that, Zach, because in reading the book, I felt maybe this is just confirmation bias. But as I read the book, I thought to myself, Wow, in the wild, wild West days, with all the booms and all the busts, there were some people trying to hold it all together. Thank goodness. Then you know, there's the role people associated with the firm played in the creation of the International Financial Institution in the post World War two era. That too was a group of elites trying to stabilize things in that case, both globally and domestically. And then I looked at the contemporary world, where we seem to be entering a period of relative destabilization, and I thought, oh, boy, who's playing that role now? But what I'm hearing from you is something a little different. What I'm hearing from you is, look, the other institutions aren't really playing that role, and insiders maybe have a little bit too much power, and so some spreading of the power might actually be desirable in this historical moment. Yeah, and that's why I think it's back to this culture thing, which I'm going to hammer home on unsatisfying though it is at times to myself as well, which is, if you're going to democratize finance and democratize nodes, you also have to democratize responsibility. And that's where culture becomes really important individually, right, which is like I don't get to just pursue what I'm going to pursue without consequence. Some of that has to be self imposed, right, It cannot just be imposed by others. And we're not going back to an elite construct world because there's no evidence that we could or should. Although I actually think large multinational companies, by virtue of the pressures on them from governments and their own employees and financial forces, have become many of them much more responsible to the global commons than any one government and then to a lot of people, and that's a kind of an interesting development. You know, they've been much more focused on climate change because it hurts their bottom line. They've been more focused on being efficient, they've been more focused on sometimes on minimum wages than government has often self interested. You know, why does Walmart raise the minimum wage of its workers? The idea, you know that this can all be done surely by a regulatory framework, I just think is a mistake. I think that's a necessary back to that question, necessary but not sufficient part of what we tried to teach ourselves in schools and you know, the whole education systems. How do you create people who feel responsibility as citizens to a larger good? And I guess you know the utopian translation of that into the GameStop thing is you just you can't endlessly make your own money. It's got to come from somewhere. You can't endlessly destroy or create companies out of nothing. Eventually there has to be something. And look, we might look back at this all very quaintly in ten years as a luxurious discussion for a system that's collapsed. But we also might look back all of this in ten or fifteen years as the messiness in the fray getting to a more constructive place of what you'd call inclusive or sustainable capitalism. Zach, I want to thank you for writing yet another book that explains hard to understand stuff that's really important to those of us who care to learn the books. Is great, and please keep up your dual track body of work of writing history to explain things to us while also continuing to do it in practice yourself. Thanks so much, Noah, We'll be right back. Listening to Zach talk about the history of capitalism in the United States and its future really made me reflect on a deep tension in the way that power works in the context of capitalism. On the one hand, capitalism is a space of radical equality in that my dollar is worth the exact same amount as your dollar, and in theory, the markets don't care at all about what we look like or how we sound. They only care about how much money we can generate. And yet, at the same time, on the other side of the split screen, the history of capitalism is a history of particular people becoming insiders, as in Zach's title Inside Money, and using that insider status, either for good or ill, to shape the future of the power of capital. Brown Brothers begins in his story as trustworthy and successful because of the specific identity of the firm and the reputational concern that it has to be trusted, that trust starts as personal, and by virtue of it being personal, it creates tremendous power in the people who are able to establish that reputation. This kind of capitalism is the capitalism that creates stability, but that also simultaneously creates fundamental inequality, because in this world you and I are not equal. When we put a dollar on the table, it matters entirely who is trusted, And when you get to the question of who's going to be trusted, suddenly the determinants of background, identity, race, class, and sex start to come into the picture. So our distributional inequalities are partly a result of this aspect of capitalism itself. Another major takeaway of Zach's book is that the risk taking that we associate with the most famous financial firms is not necessarily the only way for big financial institutions to last and even to get rich. It is rather a product of a new historical period in which, as Zach explained, the fact that the big banks are publicly traded, means that the people who work for them have a lot to gain by taking risk and very little to lose. By taking risk, and that is fundamentally different than the way the system worked when the big banks were partnerships, and if you took a risk to make money, that meant you were personally taking a substantial risk to lose money. As Zach points out, he's not the first person to have made that point, but he makes it tremendously powerfully. The third and final takeaway for me was the question of the democratization or the popularization of finance. I thought in reading Zach's book that he would be nervous about GameStop, coin base, robin Hood, crypto, and the general idea that right now finances being taken out of the hands of the responsible financial institutions and increasingly put into the hands of the ordinary investor sitting at a computer screen and treating the whole thing as a kind of a game. But to my surprise and to my interest, Zach is actually very open to the idea that capital needs to be small d democratized, or popularized because the institutions at the top are not very good at caring for the overall well being the way they once perhaps were, in large part because they don't care as much as they once did about maintaining their reputations for trust and caring about the whole. Zach favors our being more responsible and talking about utopian ideals. At the same time, He's distrustful enough of our capacity to do so that he welcomes the possibility of change from the outside. I love to be surprised in conversation. Indeed, that's one of the reasons that I love doing this Deep Background show, because I love to be surprised by things that people have to say, and that came as a genuine and interesting surprise to me. I learned a tremendous amount from the conversation and from the book, and I hope that you listeners learn something too. Until the next time I speak to you, breathe deep, think deep thoughts, and if possible, have some fun. If you're a regular listener, you know I love communicating with you here on Deep Background. I also really want that communication to run both ways. I want to know what you think are the most important stories of the moment and what kinds of guests you think you would be useful to hear from. More So, I'm opening a new channel of communication to access it. Just to my website. Noah Dashfelman dot com. You can sign up from my newsletter and you can tell me exactly what's on your mind, something that would be really valuable to me and I hope to you too. Deep Background is brought to you by Pushkin Industries. Our producer is mo La Board, our engineer is Bentaladay, and our showrunner is Sophie Crane mckibbe. Editorial support from noahm Osband. Theme music by Luis Guerra at Pushkin. Thanks to Mia Lobell, Julia Barton, Lydia Jeancott, Heather Faine, Carlie mcgliori, Maggie Taylor, Eric Sandler, and Jacob Weisberg. You can find me on Twitter at Noah R. Feldman. I also write a column for Bloomberg Opinion, which you can find at Bloomberg dot com slash Feldman. To discover Bloomberg's original slate of podcasts, go to Bloomberg dot com slash podcasts, and if you liked what you heard today, please write a review or tell a friend. This is Deep Background

Pushkin Pushkin from Pushkin Industries. This is Deep Background, the show where we explore the stories behind the stories in the news. I'm Noah Feldman. As regular listeners know, on this season of Deep Background, we've been focusing on power in its many different forms. We've talked a fair amount about power and global politics. We've talked about power and publishing. But until now we haven't had a direct conversation about one of the most important seats of power in the United States and indeed in the world. Wall Street Today's guest is here to help us fill that gap. Zachary Carrabelle is a historian and author who spent years working on Wall Street, both as head of Global Strategies That Investment and as president or Fred Alger and Company. He's the author of a new book called Inside Money, Brown, Brothers, Harriman and the American Way of Power. The book charts the long history of this particular investment bank, suggesting that its ability to survive for two hundred years of boom and bust cycles comes from its refusal to over extend itself and to take on too much risk, a lesson that he believes Wall Street today could learn a lot from Zach is the perfect person to talk about power, Wall Street history and where we're going in the future. Zach, thank you so much for being here. Zach, you are a polymathic and unusual person, and in a sense, you're the ideal person to have written this new book because you have a PhD in history, You've never stopped writing books of history, no matter what other thing you've been doing. You've also had several different careers in and around finance, and that really means that if anyone were going to write a book that was going to be, in effect a history of power in American capitalism, it would be you. I read your new book Inside Money, Brown, Brothers, Harriman and the American Way of Power as really that a book that tells the story of capitalism in America through the eyes of one venerable firm. What gave you the idea to do this? That's exactly what the book is, and look narcissistically, it is the perfect culmination of a lot of what I've done for the past twenty years, and that it brings together the academic strain and the financial investment career strain into one delightful four hundred plus page package. It ended up, I think, in a weird way, being a lot more interesting to me writing the book and really thinking through the nature of American capitalism and the nature of American power over two centuries, and the sort of arbitrariness of one definition of capitalism that has emerged in the past thirty years versus multiple different capitalisms that could just as well have predominated and at earlier points in the past did And that you know, we're constantly in the position of remaking our culture and remaking what we think of our systems. And then a weird way, this book became pointed in that direction in a way that I didn't actually expect when I sat down to write the book. I was going to ask you that which came first, the chicken or the egg question? Did you pick your topic this bank and its history, and then from there you realize that it was emblematic or were you looking for some concrete story to tell that would enable you to paint the big canvas. Yeah, and it was definitely the latter. I did not set out to write a book about Brown Brothers Harriman. I did sit out to write a book about the crucial role of money making American power in the nineteenth century, and then how the men and they were all men, and they were all white men, and they were mostly Protestant white men. How that cohort made the global system of the twentieth century, and where that leaves us today. So that's kind of the arc I wanted to look at. And they're the perfect aperture for that art. They are maybe the only firm that could actually tell that story from the get go to the present, because first of all, they're the only one that has been around for two plus centuries, which doesn't make them worth writing about. Right, living long is not living necessarily interesting. I really thought at one point, like, how am I going to make a group of stayed bankers, particularly in the nineteenth century, who wanted to be stayed, who didn't want to be in the news, who spent a lot of their history celebrating the fact that every day they woke up and their name was not in the papers as a good day. You know, how do you make that interesting? The arc I thought was interesting. Turned out I think that they're a lot more interesting than even I thought going into it. I share with you the sense that there's an alchemy here. You know the book doesn't. If you were not the author of the book, I don't think I would have picked it up, because I would have thought, this is a great topic, But how the world could you tell it in a way that is in fact engaging? But because I've read your other books, I knew you would be able to find a way to do that. What was the trick? And for listeners who are thinking, why in the world would I be interested in this, I'm definitely interested in the history of capitalism in the nature of power, But why would I want to hear it told through these folks? What for you were the features of those cautious state people who, as you show, we're trying to be the ones always to avoid going under What is it about them that you were able to make interesting? So, first of all, it turns out Brown Brothers was present at the creation of almost everything vital in American certainly economic history and in many ways just American history. They're just in the back row right, They're they're like the zelle. They're in the second row, back left, kind of looking like a bank, and they don't really want to be the story and they don't want to be the picture. But without them. There's no story and there's no picture, and there is a lot of drama in the creation of a nation, and the creation of a nation like the United States, which kind of emerges out of nowhere in the nineteenth century, graced with lots of resources but very little invested capital, and you have these this firm like Brown Brothers that essentially creates the paper money system that I think is a huge differential, right, It's partly what makes the United States the United States. Is this incredibly chaotic, liquid world where if you had a hope and a dream, it was way easier to get money because it was paper. It wasn't people, it wasn't gold, it wasn't land. And Brown Brothers is kind of at the epicenter of this, you know, the the alchemists who were really mindful of the destructive potential of their alchemy and not animated by greed and not animated by personal gain at the expense of public good. I actually found that that section of the book completely gripping, and I learned a huge amount from it. And I wonder if you'd spend just a moment telling listeners just the short version of this. I mean, I guess I knew in a general sort of way that Fiat backed currency greenbacks were really a product of the Civil War in some general way. And I also knew from working on my own interest in the history of the Constitution, that in the early years of the Republic, money was very scarce because there was still a sense that we had to be dependent on gold and silver, and there wasn't that much gold and silver in North America relative to what there was in Europe, and so it was always hard to get hold of money, and so as a consequence, there was always a lot of need for some other mechanisms of credit. What you show so beautifully in the book is that there was an interim solution there, and that that solution we've somewhat forgotten today was letters of credit. Say a word about what that is and why it matters, and then from there maybe we can talk about the metaphoric relationship that that has to the way the capital moves today in the world. So this is one of these things that narratively I found challenging the way, like a theoretical physicist can find it challenging to write a popular story of that in a way that doesn't put people to sleep. You know, the idea of writing at great length about letters of credit was kind of a nonstarter narratively. Nonetheless, just like the strong and weak forces of an atom, trying to explain that as a pretty crucial binding force for society seems essential and completely overlooked in our story of what essentially makes the United States as affluent and powerful as it was. So for much of the nineteenth century, you either had too little money or too much money, too much currency. People needed money, so they're all these banks issuing a lot of currency, and it was worth about as much as it was until it wasn't. And that's why you had every twenty years in the nineteenth century, you have a financial crisis, a panic in eighteen nineteen, eighteen thirty seven, eighteen fifty seven, eighteen seventy three, eighteen ninety three, nineteen o seven, of course nineteen twenty nine. And behind the scenes in the system you have a very few number of players at which Brown Brows was essential, who make sure that the trains run on time. Literally, I mean they helped build the first passenger railroad, the BNO, and they helped create the transatlantic shipping system so that people knew that if they made stuff and grew stuff, that someone would buy the stuff. And letters of credit were the connective tissue, first between cotton growers in the South and people bought the cotton in England and turned it into cloth, and then for all sorts of trade, every single trade, and without which there's no system, right, there's no assurance that people will be able to buy and sell stuff. And the amount of cher liquidity in the United States did lead to these incredible periods of capital creation and booms, and then it led to these incredibly tumultuous bus much worse than anything we saw in two thousand and eight two thousand and nine. I mean, these panics eviscerated the financial system, and then you had these bankers at the center of it, of whom Brown Brothers were the most important, making sure that in spite of everything, there would be trade, there would be goods. Some of it was hugely morally problematic, right, the cotton trade was on the backs of enslaved men and women, and Brown Brothers was totally complicit in that, and a lot of which was basically helping the creation of the American economy and the creation of the United States. And these letters were what you used as kind of a trusted I know that if I part with my goods, someone on the other side, the other side the Atlantic, will buy them, and if I part with my money, I'll get my goods. And these letters of credit were that connective tissue. And we're essentially, if not invented by Brown Brothers, perfected by them and then used by other banks and other financial intermediaries. First of all, that was a fantastically clear explanation, so thank you. But I think you do so well in the book to show that Brown Brothers played a major role in answering the question who can you trust? You know that basically, unless there's an answer to that question where a person attached, a financial system cannot gain the kind of trajectory that it needs to get flowing. Flow is everything, and if you don't trust people, you can't get flow with the scale that is necessary. Reading that, one starts immediately to feel the question of what about today? Where does such trust lie in the system today, if at all, should it exist to a greater degree than it in fact does? And what is the presence or absence of trust in our current system? Tell us about where things stand, you know, So the interesting thing is, as you highlight their word was their bond. The reputation was key a lot of the letters at Alexander Brown in the first thirty years of the nineteenth century writes to his four sons, who are the Brown brothers? Heads? Brown brothers? You sound like some distillation of Ben Franklin and Poor Richard's Almanac, and Polonius and Hamlet and every kind of homily and cliche that every parent has ever given to every child. Don't take risks that are beyond your means. Make sure you know the people you're in business with. Its trust is easily lost and hard to gain. And they kind of live this and breathe it because they recognize that in a world without a lot of trust, those things are unequivocally true. What's really fascinating about today is I don't think we have fully appreciated what a radical break the past fifty years have been globally in terms of how human beings conceive of money, right, and that the idea that a paper promise is worth more than the paper it's written on was a completely alien concept for most societies for most of history and still makes people, you know, radically uncomfortable with the notion of really, at the end of the day, if I give you a dollar, whether it's digital or paper, it's a pretty abstract thing. And the fact that we say that it has values because all of us have kind of collectively decided that it has value, not because it actually has any intrinsic value. And cryptocurrency dramatizes this to an incredible degree exactly, which is also why I'm really impatient with a lot of crypto skeptics. Not that I'm a crypto bull, I'm just saying the crypto skeptics say, oh, come on, it's not worth anything, right, without recognizing that frankly, we live in a world that there's no intrinsic value to most things. You know, it's the value we ascribe to it with intermediars who we think will be good for it. And in many ways, you know, us power today, as cemented by the global possession of the dollar, because there needs to be some common means of exchange, relies on a lot of faith in the system. That makes a lot of people uncomfortable, but it is the product of several hundred years of evolution, of which the paper money part of the nineteenth century is like the first chapter of which we're now living. In the later chapters, the question of trust isn't interesting, and that like, I don't necessarily trust my bank in the sense of I think they're good people, But I trust my bank in the sense of I clearly believe that if I put money in the bank, they're good for it. And that's a combination of a little bit of a regulatory framework, right new deal law is saying your deposits are insured, and a little bit of you know, I don't have any reason to believe otherwise, and I need that, like we need that to function. And in an early version, you need something like Brown Brothers, which is surely their reputation. So I don't think trust has gone away. We just don't think of it in quite the same way. And arguably it's a slightly different phenomenon. Right, I mean, we begin with the idea that I know you, and I trust you because I know you to be the kind of person based on my experience of you, whom I can rely on. Then you get a firm like Brown Brothers that begins to institutionalize that trust. I may not know you, but I know your brand and I know that your bank is committed to not going under, and so in that sense, I trust you. So that's a bit of an institutionalization of the trust away from one person to an institution, but it's still a small institution, and it's still a family owned institution. What you have today, though, is a very different stage in the evolution, where the trust is almost almost not at all in the institutions and almost all in the governmental structures that create the conditions where we think that the institution will follow the rules because otherwise people would go to prison. And that's a different kind of institutional trust. It's still trust in a set of institutions, but they're less the institutions, the financial institutions themselves, and more the regulators of those institutions. So you're totally right about the regulatory framework and that being an essential component to people's trust in the financial system. This is an explicit in the book. It's certainly explicit in a lot of what I've written about. I think regulation is necessary but not sufficient, right, and some of the regulatory craze today in the Biden administration this is a whole other conversation, but I think it treats regulation as sufficient and necessary. One of the lessons of a Brown Brother's culture is that you need a culture. Right. You can regulate behavior, but you can't really regulate culture, or you cannot create a regulatory framework that leads companies in the near and I think even the mid term to embody a different culture. What's fascinating about an earlier version of American capitalism was it was an an internal culture that recognized the ineluctable bond between private gain and public good, and that individuals and collectives that were private. It was part of a narrative of we I eat the individual, and the company is responsible to the collective because ultimately, we the individual in the company can't thrive unless the collective in which we're embedded also thrives. That was a non regulatory ethos, and it led to some of the behavior that regulation seeks to force. So it was internal guardrails rather than external guardrails. And I happen to believe in part of the point of the book is culture matters, and without those internal guardrails, all the external guardrails in the world, they can create an adversarial culture where behavior is constrained, but they cannot easily create positive behavior, they can curtail negative behavior. We'll be right back. Let me ask you a question, Zach, about a theme that is already in the title of your book. There's a more ultiple meaning to the title inside Money. But on any of those possible meanings of that phrase, there's an idea that there is an inside and an outside to money, that there are elites who understand what's going on and who have a lot of power and the capacity to pull strings, and then there's the rest of us who are on the outside. Maybe our noses are pressed up against the glass. Maybe we don't even know where the glass is to press our nose up against it, And sociologically that remains true. But arguably there is a democratizing impulse in finance today that it's not the first time. You know, There's been lots of other moments when the public got interested, and sometimes that was a sign that there was about to be a crash, but we certainly seem to be in one now where people talk about gamification of trading, They talk about how easy it is to open a coin base account, they talk about how easy is to trade on platforms like robin Hood, and then you actually have the crazy phenomenon of activists whose nature of their activism is to boost up stocks that the insiders agree aren't very valuable, and that frankly, any rational person would agree aren't very valuable, and they're experiencing it as a kind of thrill of the outsiders. And in that sense, it's a populist or democratizing with a small d mode of finance. What do you think about that when you read about populist impulses to beat the insiders at their own game, yea? Or when you read people saying, you know what's wrong with finances, that it's in the hands of the few. It ought to be in the hands of the many, right or wrong? Do you feel some sense of fear when you hear that? Do you think, oh my god, these poor people are gonna hurt themselves. Nope. I think I celebrate almost all of that, but with the cautionary reality of people will be harmed by that, just as they were harmed by the system that they're being rejected. You know, revolution is often necessary, but it's not very balanced. I mean, I would prefer for evolutionary change. I think we'd all be healthier for it, because there'd be less collateral damage along the way, So a populist opening, you know, that's a little less burn it all down, burn baby burn. I mean there's an element of the the whole thing that went on with Game Stop, and there's an element with Robin Hood that can approach the burn baby burn attitudes of the late sixties, like the system is irremediably corrupt, so we should just blow it up and start it again. I'm not really into that one, but but it's so interesting you're saying that because I have the exact opposite instinct. I look at Game Stop and I say, boy, in the sixties, when they wanted to burn it all down, they didn't say it and let's do it by trading and making money. Right. There was a kind of utopian idealism associated with being anti capitalist. Today, capitalism is so much the you know, the air we breathe, the water we drink, that the burn it down comes in the form of let's do a trade, right, let's let's I mean that you can't get closer to the ultimate victory of capitalism than if the people who want to break capitalism want to break it by capitalist means. They're not trying to use the master's tools to deconstruct the master's house. They're trying to use the master's tools to become the masters. Neither more nor less, that is definitely true. I do think more inputs, more egalitarian, more access to more capital for more people who can make their own choices, that I find a good thing, you know, And the same way that unlocking capital in the nineteenth century was nett I think a better thing than not led more people to have what we would consider to be a middle class life. It's the story of what's going on in Asia. You know, it's like unlocking human capital and actually creating a capital system. But this honestly is a philosophical discussion because it leads to answers in action of kind of the cup half full, cup half empty. Right, If you somewhat celebrate these moves, you have a different attitude. If I'm at the SEC right now and I think both game stop and crypto and the kind of unregulated mass of financial activity is unleashing destructive forces that need to be bottled, You're going to have a particular regulatory and or philosophical response if you think that they are inherently positive developments and that they would create more inclusivity. What wasn't very elite to system you're going to think in terms of regulation and guardrails very differently. So in that sense, I think the where you sit visa VI these developments shapes what kind of policies and what kind of actions you take in the present. Really, intimately, I'm really interested to hear you say that, Zach, because in reading the book, I felt maybe this is just confirmation bias. But as I read the book, I thought to myself, Wow, in the wild, wild West days, with all the booms and all the busts, there were some people trying to hold it all together. Thank goodness. Then you know, there's the role people associated with the firm played in the creation of the International Financial Institution in the post World War two era. That too was a group of elites trying to stabilize things in that case, both globally and domestically. And then I looked at the contemporary world, where we seem to be entering a period of relative destabilization, and I thought, oh, boy, who's playing that role now? But what I'm hearing from you is something a little different. What I'm hearing from you is, look, the other institutions aren't really playing that role, and insiders maybe have a little bit too much power, and so some spreading of the power might actually be desirable in this historical moment. Yeah, and that's why I think it's back to this culture thing, which I'm going to hammer home on unsatisfying though it is at times to myself as well, which is, if you're going to democratize finance and democratize nodes, you also have to democratize responsibility. And that's where culture becomes really important individually, right, which is like I don't get to just pursue what I'm going to pursue without consequence. Some of that has to be self imposed, right, It cannot just be imposed by others. And we're not going back to an elite construct world because there's no evidence that we could or should. Although I actually think large multinational companies, by virtue of the pressures on them from governments and their own employees and financial forces, have become many of them much more responsible to the global commons than any one government and then to a lot of people, and that's a kind of an interesting development. You know, they've been much more focused on climate change because it hurts their bottom line. They've been more focused on being efficient, they've been more focused on sometimes on minimum wages than government has often self interested. You know, why does Walmart raise the minimum wage of its workers? The idea, you know that this can all be done surely by a regulatory framework, I just think is a mistake. I think that's a necessary back to that question, necessary but not sufficient part of what we tried to teach ourselves in schools and you know, the whole education systems. How do you create people who feel responsibility as citizens to a larger good? And I guess you know the utopian translation of that into the GameStop thing is you just you can't endlessly make your own money. It's got to come from somewhere. You can't endlessly destroy or create companies out of nothing. Eventually there has to be something. And look, we might look back at this all very quaintly in ten years as a luxurious discussion for a system that's collapsed. But we also might look back all of this in ten or fifteen years as the messiness in the fray getting to a more constructive place of what you'd call inclusive or sustainable capitalism. Zach, I want to thank you for writing yet another book that explains hard to understand stuff that's really important to those of us who care to learn the books. Is great, and please keep up your dual track body of work of writing history to explain things to us while also continuing to do it in practice yourself. Thanks so much, Noah, We'll be right back. Listening to Zach talk about the history of capitalism in the United States and its future really made me reflect on a deep tension in the way that power works in the context of capitalism. On the one hand, capitalism is a space of radical equality in that my dollar is worth the exact same amount as your dollar, and in theory, the markets don't care at all about what we look like or how we sound. They only care about how much money we can generate. And yet, at the same time, on the other side of the split screen, the history of capitalism is a history of particular people becoming insiders, as in Zach's title Inside Money, and using that insider status, either for good or ill, to shape the future of the power of capital. Brown Brothers begins in his story as trustworthy and successful because of the specific identity of the firm and the reputational concern that it has to be trusted, that trust starts as personal, and by virtue of it being personal, it creates tremendous power in the people who are able to establish that reputation. This kind of capitalism is the capitalism that creates stability, but that also simultaneously creates fundamental inequality, because in this world you and I are not equal. When we put a dollar on the table, it matters entirely who is trusted, And when you get to the question of who's going to be trusted, suddenly the determinants of background, identity, race, class, and sex start to come into the picture. So our distributional inequalities are partly a result of this aspect of capitalism itself. Another major takeaway of Zach's book is that the risk taking that we associate with the most famous financial firms is not necessarily the only way for big financial institutions to last and even to get rich. It is rather a product of a new historical period in which, as Zach explained, the fact that the big banks are publicly traded, means that the people who work for them have a lot to gain by taking risk and very little to lose. By taking risk, and that is fundamentally different than the way the system worked when the big banks were partnerships, and if you took a risk to make money, that meant you were personally taking a substantial risk to lose money. As Zach points out, he's not the first person to have made that point, but he makes it tremendously powerfully. The third and final takeaway for me was the question of the democratization or the popularization of finance. I thought in reading Zach's book that he would be nervous about GameStop, coin base, robin Hood, crypto, and the general idea that right now finances being taken out of the hands of the responsible financial institutions and increasingly put into the hands of the ordinary investor sitting at a computer screen and treating the whole thing as a kind of a game. But to my surprise and to my interest, Zach is actually very open to the idea that capital needs to be small d democratized, or popularized because the institutions at the top are not very good at caring for the overall well being the way they once perhaps were, in large part because they don't care as much as they once did about maintaining their reputations for trust and caring about the whole. Zach favors our being more responsible and talking about utopian ideals. At the same time, He's distrustful enough of our capacity to do so that he welcomes the possibility of change from the outside. I love to be surprised in conversation. Indeed, that's one of the reasons that I love doing this Deep Background show, because I love to be surprised by things that people have to say, and that came as a genuine and interesting surprise to me. I learned a tremendous amount from the conversation and from the book, and I hope that you listeners learn something too. Until the next time I speak to you, breathe deep, think deep thoughts, and if possible, have some fun. If you're a regular listener, you know I love communicating with you here on Deep Background. I also really want that communication to run both ways. I want to know what you think are the most important stories of the moment and what kinds of guests you think you would be useful to hear from. More So, I'm opening a new channel of communication to access it. Just to my website. Noah Dashfelman dot com. You can sign up from my newsletter and you can tell me exactly what's on your mind, something that would be really valuable to me and I hope to you too. Deep Background is brought to you by Pushkin Industries. Our producer is mo La Board, our engineer is Bentaladay, and our showrunner is Sophie Crane mckibbe. Editorial support from noahm Osband. Theme music by Luis Guerra at Pushkin. Thanks to Mia Lobell, Julia Barton, Lydia Jeancott, Heather Faine, Carlie mcgliori, Maggie Taylor, Eric Sandler, and Jacob Weisberg. You can find me on Twitter at Noah R. Feldman. I also write a column for Bloomberg Opinion, which you can find at Bloomberg dot com slash Feldman. To discover Bloomberg's original slate of podcasts, go to Bloomberg dot com slash podcasts, and if you liked what you heard today, please write a review or tell a friend. This is Deep Background