Episode #431: Scott Reynolds Nelson – How Wheat Made The Modern World

Episode #431: Scott Reynolds Nelson – How Wheat Made The Modern World

 

Guest: Scott Reynolds Nelson is the author of Oceans of Grain: How American Wheat Remade the World. He is also a Professor at the University of Georgia, teaching about 19th-century US history, including the history of slavery, international finance, the history of science, and global commodities.

Date Recorded: 7/13/2022     |     Run-Time: 54:44

Summary: Given current events today, our conversation with Scott about the role of wheat on the world couldn’t be more timely. Scott shares why access to wheat has caused the rise and fall of empires, social unrest like the Arab spring, and even plagues, all of which we’re seeing today. Scott walks through why he believes the Russia / Ukraine war is another example of countries going to war for access to wheat and the related trade routes.

As we wind down, we touch on Scott’s research into the history of US financial crises and the role of commodities in each.

Sponsor: AcreTrader – AcreTrader is an investment platform that makes it simple to own shares of farmland and earn passive income, and you can start investing in just minutes online.  If you’re interested in a deeper understanding, and for more information on how to become a farmland investor through their platform, please visit acretrader.com/meb.

Comments or suggestions? Interested in sponsoring an episode? Email us Feedback@TheMebFaberShow.com

Links from the Episode:

  • 0:40 – Sponsor: AcreTrader
  • 1:40 – Intro
  • 2:27 – Welcome to our guest, Scott Reynolds Nelson; Oceans of Grain: How American Wheat Remade the World
  • 5:44 – Why the history of wheat is the history of the world
  • 9:06 – Why wheat plays a large role in the conflict between Ukraine and Russia
  • 12:54 – Scott’s thoughts on food security
  • 24:07 – What Yersinia Pestis is and why it was featured in his book
  • 31:23 – His most interesting financial disaster in America; A Nation of Deadbeats
  • 35:21 – How wheat led to the invention of futures contracts
  • 37:42 – Are there any parallels we can pull from history for today?
  • 44:59 – Scott’s plans for the summer and what’s next after finishing his latest book
  • 50:16 – Learn more about Scott; Twitter @nelsonhist

 

Transcript of Episode 431:

Welcome Message: Welcome to “The Meb Faber Show” where the focus is on helping you grow and preserve your wealth. Join us as we discuss the craft of investing and uncover new and profitable ideas, all to help you grow wealthier and wiser. Better investing starts here.

Disclaimer: Meb Faber is the co-founder and chief investment officer at Cambria Investment Management. Due to industry regulations, he will not discuss any of Cambria’s funds on this podcast. All opinions expressed by podcast participants are solely their own opinions and do not reflect the opinion of Cambria Investment Management or its affiliates. For more information, visit cambriainvestments.com.

Sponsor Message: Today’s episode is sponsored by AcreTrader. On the first third of 2022, both stocks and bonds were down. You’ve heard us talk about the importance of diversifying beyond just stocks and bonds alone. And if you’re looking for an asset that can help you diversify your portfolio and provide a potential hedge against inflation and rising food prices, look no further than farmland. Now, you may be thinking, “Meb, I don’t want to fly to a rural area, work with a broker I’ve never met before, spend hundreds of thousands of dollars to buy a farm, and then go figure out how to run it myself.” But that’s where AcreTrader comes in. AcreTrader is an investment platform that makes it simple to own shares of farmland and earn passive income. And you can start investing in just minutes online. I personally invested on AcreTrader, I can say it was an easy process. If you want to learn more about AcreTrader, check out episode 312 when I spoke with founder, Carter Malloy. And if you’re interested in a deeper understanding on how to become a farmland investor through their platform, please visit acretrader.com/meb. That’s acretrader.com/meb.

Meb: What’s up my friends, awesome show today. Our guest is Scott Reynolds Nelson, the author of “Oceans of Grain: How American Wheat Remade the World.” He’s also a professor at the University of Georgia, where he teaches all about international finance and global commodities. Given current events today, our conversation with Scott about the role of wheat in the world couldn’t be more timely. Scott share’s why access to wheat has caused the rise and fall of empires, social unrest like the Arab Spring, and even plagues. Scott walks through why he believes the Russia-Ukraine war is another example of countries having conflict for access to wheat and the related trade routes. As we wind down, we touch on Scott’s research in the history of U.S. financial crisis and the role of commodities in each. Please, enjoy this episode with Scott Reynolds Nelson.

Meb: Scott, welcome to the show.

Scott: Thanks so much for having me on the show, Meb.

Meb: Where do we find you today?

Scott: I’m in Athens, Georgia.

Meb: You know, my wife was a Ph.D. right down the road at Emory. And as you and I were joking in the intro, my mom was a bulldog briefly. But probably like a lot of Georgia grads, you know, I don’t think she made it to the finish line. So…

Scott: Right. There are a lot of bars in Athens. There are a lot of bars in Athens.

Meb: An awesome city. You have a new book out that I loved and I read called, “Oceans of Grain.” The interesting part about the book is if you hear that title, you may think it’s just about farming or about wheat because the subtitle is “How American Wheat Remade the World,” but really it’s in its core history book. I mean, I’m telling the author that, but that’s what it felt like. So, you can correct me. But I think I heard you say in passing or maybe was in the book, but this has been a project you’ve been…that’s been on the brain for a while. So, give us a little backstory on what inspired you to write this, and then we’ll dig in.

Scott: Yeah. So, back to empire, you know, empire is something that I’ve been interested in and thinking about for a while. But I guess it’s 1987, I finished my honors thesis on iron and steel industry. And I realized that this thing called the Panic of 1873 that I had read about and had been written a lot about was wrong. That it was basically…the story that most Americans had, most American historians had, which is that the Panic of 1873 was this formative moment creates American industrialization is the background for the birth of the large corporation and things like that, that it was this origin story was different. And I just knew it was wrong in 1987, but I didn’t know why it was wrong. And so, the kind of those years since then, you know, 30-some years since then has been trying to figure out what that origin story is. And it turns out, I think that the origin story of American industrialization geopolitical power is not the standard things in industrial capacity, engineering supremacy, those sorts of things, it’s really about food. It’s really about replacing Russia as the breadbasket of Europe. And the story is how does Russia become the breadbasket of Europe in the 1770s and ’80s? And then how does the U.S. steal much on Russia in the 1860s really during the civil war? And telling the story of Russia and U.S. tensions, going all the way back to the 1790s is in a way what the story’s about, and it’s also about food, and geopolitics, and trade, and stuff like that.

Meb: Well, I mean, it’s sadly timely. But, you know, it’s funny because you see the front of the discussion today with everything going on. And all of a sudden, everyone, you know, Ukraine and Russia, and ag prices are all thrust into the forefront. But this has been, you know, something you’ve clearly been in thinking about working on for a while. So, let’s start at the beginning, man. Take us back, you know, wheat has a special place in my heart because… And part of your story that you write is a story of my family. So, my father’s side immigrated from Germany and France into Nebraska. And he grew up on a farm in a tiny town called Holstein, Nebraska. So, we still have family and farmland in Kansas, Nebraska today. So, we talk a lot about my very inept experience trying to be a farmer. But it’s a fun story. So, anyway, talk to us a little bit about why this topic of wheat is, in many ways, a timeline of human history and development. Just dig in.

Scott: Yeah. So, wheat is energy, right? And so when we measure food, we talk about calories. And when we talk about gas and oil, we talk about calories. When we talk…like, calories are measurement of energy. And the primary source of energy that we have shared for 10,000 years has been wheat food. Wheat is the kind of famine food, it’s the food that you go to last. You eat it every day, but it’s the last thing, you know, you’ll eat it, and it travels pretty well. And so part of what I figured out as I was kind of wrestling with this question of economic development, geopolitics, and conflict was that if you look at the way in which food moves around, you can actually see empires in the making, and you can see the weak points of empires. And my man crushed, this guy, Israel Helphand, also called Parvus, he wrote about this. As I was, you know, thinking and writing about this, I wrote a couple of articles about grain and stuff like that. And I realized I was effectively cribbing this guy. He was writing in the 1880s and ’90s saying the same thing that America supplants Russia, that it’s producing all this food, and it’s destabilizing Europe.

And he’s not somebody to take lightly because he’s the person who persuades the German government during World War I to send a sealed train of Bolsheviks to the Finland station to start the Russian revolution. He’s the architect, in some ways, of the Russian Revolution. So, he’s sort of understanding of food, and how it travels and where the weak points are, where the strong points are is for him really how to understand politics in his day and in the present day. And thinking through, putting on Parvus goggles in that book, I said, somewhat grandly, you know, that Russia would never be a great power again without control of Ukraine. And that was weirdly pressure because the book came out in February of 22nd, and Putin invaded two days later. And we now know that his plan is to control much of the Northern part of the Black Sea much in the way that, you know, Catherine the Great… That was Catherine the Great’s plan. That’s been the plan of the Russian empire going back centuries.

Meb: So, dig in a little more for us while we’re talking about it, Ukraine and Russia, the conflict. Give us a little more on the history. You talk about Ukraine flag, you talk about the history of the conflict. Give us a little more background on kind of the lead-in to this year. It’s not something that just kind of started in 2022.

Scott: Right. So, I think, you know, people think that this is a new conflict, Russia’s war over Ukraine, that has something to do with NATO or something to do with UN. But from a longer-term perspective, this is the 10th war in the last 250 years in which Russia has invaded this region to try to control the Black Sea, which they see as a really crucial geopolitical point. It’s the place where food comes from, and has been since roughly 2,800 BC. Jason and the Argonauts, the story is arguably a story about wheat. So, that’s the Golden Fleece is really grain that’s discovered in the Black Sea and then brought back to feed the Greek city-states. But Russia has always had designs on the Black Sea because, in the Greek world, the ancient Greek world, that was the feeding place for Europe for… And when Catherine the Great creates the city of Odesa, she names it after Odesos, which was an old Black Sea port in the ancient Greek period.

Ukraine is the sort of Goldilock zone. You’ve got deep ports, deep water, you’ve got fresh water coming in, you’ve got flat plains, you’ve got very, very dark soil. So, it’s kind of a Goldilock zone. It’s the perfect place to grow grain and has been feeding empires really for thousands of years. Russia wants that, want to control that. And when it took Ukraine in the 1770s, it basically allowed Russia to become a world-spanning empire. It’s after they take the Black Sea. After Odesa becomes the source of gold for the foreign exchange for Russia, it’s able to expand rapidly west towards Europe and east towards Asia. And the reason that Russia’s empire is the size it was is really, not just because it’s got a great army and not just because it’s military might, all that military might, all that wealth really comes from the ability to provide food to the rest of the world.

Meb: And you can correct me if this is wrong, but the Ukraine flag represents blue sky overseeing a grain, is that right?

Scott: That’s right. Exactly. Yeah, yeah, yeah. And Ukraine recognizes that as a… You know, sub-county recognizes the importance of grain. And it’s arguably one of the best places in the world to grow grain. Not to put your great grandparents in Nebraska to shame, you know, but the folks who came from Germany to France, and Nebraska is an excellent place, but it’s pretty far away, if you think about it, from deep water. And if we’re talking about energy when we’re talking about grain, we need to talk about getting it on the ocean because friction is so much lower on water than it is on land. Ninety percent of international trade still takes place in containers. Takes place in containers now because water is a low friction environment, and beats the hell out of rail or road, or anything else like that. And so what you want is deep, flat plains, fresh water right near a deep port where you can pour it into a ship and send it anywhere in the world. And that’s kind of what Ukraine has. And what Nebraska… Nebraska has everything but, the river that goes somehow to the ocean.

Meb: Yeah. We’re seeing this reminder that, you know, food security often in the U.S., I feel like is back of mind, you know, you can go to the grocery store and see just rows and rows of food. But for much of the world, you know, the impact of food prices… We had inflation today, I think print over 9% in the U.S., which is obviously not great and inconvenient, but in many countries, it’s a huge stressor geopolitical, you know, in Africa and Europe, all the protests. Putting your historical lens, your magnifying glass or whatever on this situation, are there any parallels, any sort of insights you can draw from what’s going on today and kind of looking out to the horizon on just the stressors? I’m not going to ask you to predict what’s going to happen in Ukraine and Russia. You can if you want, but just any general thoughts on this as you apply the lens of history.

Scott: Yeah. So, I would say that one of the things, if we think about the United States is that household expenditure is roughly 25% on food, 20%, 25%. It’s the lowest just about in the world. So, our household income spent on food is a relatively low amount. We have cheap food. And there are other place… You know, the Netherlands actually has pretty cheap food because of all the cows and dairy and stuff like that. So, it’s not just big states with plains. But in places like Egypt, places like Nigeria, places that were actually on the fringe of the old Byzantine empire, fringe of the old Ottoman empire, the Northern part of the Southern Mediterranean, those places have been eating grain for 300 years. And 40% to 50% of household expenditure is on food. That’s a huge difference, right? So, price of grain goes up, price of flour goes up, price of bread goes up. And that’s a difference between being able to pay for your rent or not, a difference between your being able to feed your kids or not. And that makes people very angry.

So, we had a drought in 2011 in Russia, and Russia blocked the export of wheat. And Arab Spring was, in some ways, the result, the direct result of that. People being very upset about the price of food going up. You know, at the time, people were saying it’s cell phones, it’s a new democracy movement. But we saw incredible chaos and instability, the Syrian, Exodus, the collapse of those states had everything to do with food prices. And so, what we’re seeing here is a much more kind of artificial restriction in grain, having everything to do with the war. And two of the biggest exporters in the world are Russia and Ukraine. Russia’s blockaded Ukrainian grain. And this has effectively rapidly increased the price of Russian grain exports, which is stabilizing the ruble but puts Ukraine in a terrible bind. So, this is a grain story, I think, in part. And Putin’s master’s thesis. Putin did do a master’s thesis. It was on geopolitics of critical infrastructure, but particularly what he called the agro-industrial state. So, the way in which industry depends ultimately on cheap and stable agriculture.

China is, of course, obsessed with this. This is why China doesn’t allow or tries to block as much imported food as possible because it wants food security. Weirdly, when my book came out, like, before it even hit the stands, five Chinese publishers competed for the Chinese rights for this because a story about understanding the world through the politics of food is something that they’re very keen on in China right now. So, the food security thing I think is a little bit of a, I don’t like the phrase food security that much just because I think there are some places like the Caribbean where you’ll never be able to feed yourself with what’s on your island, right? And we all need each other to feed ourselves. You know, we’re not going to grow coffee in the United States. And there are places that need grain like Greenland that are not going to grow grain themselves. And so, I think that kind of interconnected part, we all need a kind of world market in food. And to the extent that we withdraw from that, I think then we risk conflict, war, and violence. So, as long as those trading gates are open, then I feel like we’re in better shape than not.

Meb: I want to rewind a little bit. We jumped forward, now let’s rewind back a bit because part of a lot of the topics and themes about this book, you know, in many ways, it’s a history of America’s ascent. And you talk about a lot of like little tidbits. This is why I love the book, you know, and I don’t want to give away everything. But listeners, you got to go pick up a copy. But there’s little tidbits you just pick up and it talks about everything with, you know, wheat’s association with the first capitalists, predecessor to banking and collateral, the world’s lords and lady, I mean, on and on. So, maybe tell us some of the things that you wrote about or learned about how these grains played a role in just various parts of history, but also the ascent of America as well.

Scott: Sure. Grain it’s one of the sort of… So, the Eleusinian Mysteries. One of the things that I talk about is the secret of Persephone, right? Persephone and Demeter, it’s an old ancient Greek story and I argue that it’s a story about grain storage. It’s not about planting grain, but Persephone is the daughter of Demeter. And she is trapped in the underworld for six months, and then she comes out later. And I say that that’s not a story about planting, it’s a story about how to store grain for an empire, first for the Greek empire and then later. And that secret is actually lost from about 300 AD to about 1820 AD. We lose the secret of being able to store grain underground or store grain in a sealed container so that it doesn’t spoil. And it’s only when Napoleon invades Italy in those Italian campaigns that he sends a bunch of chemists out to try to reverse engineer how the Romans might have been storing grain. And Chaptal, this chemist figures it out, figures out the secret of Persephone, which is basically you have to take the grain, you have to dry it, and you have to stir it, and you have to get it to around 20% or less liquid in the mixture. And once you do that, you can seal it and you can store it for years in that way. And that’s where we get the silo, the grain silo, and that’s where we get the grain elevator.

And that’s really important, the grain silo and grain elevator because they allow us to send grain for thousands of miles away if rediscovering the secret of Persephone. And that’s crucial to the United States because the United States is thousands of miles away from Europe, but it’s after 1825 that the U.S. can now send grain, dry it, and send it sealed to feed the rest of the world. Most Europeans thought it was crazy to get your food from that far away, you know, with like shoeing, taking a Scottish horse and shoeing it in New York, and then sending it back to Scotland, you wouldn’t go that far away for grain. But it becomes possible to send grain over long distances that way. Other stuff, yeah. Lord and lady are both words for… Grain is so baked into empire and organization and structure that the word lord is “hlafweard,” old Germanic, which means the lord of the loaf. And lady is “hlaefdige,” the kneader of the loaf. And so, that’s because ancient medieval societies were built around grain, and the person who controlled the grain was the lord, and the person who distributed the grain was the lady. And in that medieval hierarchical society, the gospels are, in part, a story about, you know, Christ as a loaf for bread, right?

And the way in which the loaf for bread is in a kind of everyday source for everyone and making an origin story, that, you know, this is my body is a way of kind of making visible to people the sort of understanding of what’s kind of fundamental in their societies. Yeah. And then I guess nitroglycerin is the other thing. The book is a little bit of a hymn to nitroglycerine because nitroglycerin allows us to penetrate the lithosphere. 125,000 atmospheres can be produced in a single boom, which takes a microsecond. And that power is 50 times more powerful than gun powder, and it allows us to put holes in mountains. And this is another thing that allows the U.S. to provide food from so far away is between 1868 and 1872. Nitroglycerin is stabilized as dynamite by Nobel in 1868. And between 1868 and 1872, every mountain in the world, with the exception of the Himalayas, is penetrated to produce tunnels for railroads. And the book “Around the World in 80 Days” is a story about that ability of a post-penetrated world to get goods around. So, we see globalization and really long trade, serious trade between the Americas and Europe is really only possible after the nitroglycerin and then after this discovery of how to ship grain. So…

Meb: It’s interesting to think about like the parallels when you’re talking about, you know, the build-out of railroads, the Telegraph, and kind of how all these various impacts are partially driven by things no one would’ve anticipated or I think appreciated as much, which I think is fascinating.

Scott: I think part of what I’m trying to do with the U.S. is make it less focused on itself. So, make us recognize that Chicago wanted to be Odesa, right? That was Chicago’s goal was to be the Odesa of the world. Odesa was the goal because that was this deep port that provided grain for the rest of the world. And Chicago becomes that really during the civil war. When, you know, you have a crisis over the Westford expansion of slavery and the U.S. suddenly needs foreign exchange just the way that Catherine the Great did. And the way that they provide it is with providing all this grain over the Atlantic ocean.

Meb: There’s a participant in your book that you haven’t mentioned yet that plays a big role, and it’s a bug, right? Yersinia pestis. Did I pronounce it right?

Scott: Yeah. Yersinia pestis. Yeah.

Meb: Yersinia pestis. Tell the listeners who that is, and why they were featured.

Scott: So, Yersinia pestis is what we now call the plague, the black plague. And it travels in the bloodstream, so it’s actually a pest that you can’t see. And it travels in the bloodstream of flee of a rat and in humans briefly. And we pass this on… So, the method of transmission is usually the flee that goes from a human to a rat and vice versa. And rats eat grain. And so, part of the way that the plague travels is over grain roots. So, when we look at, say, the black plague in the Plague of Justinian, which is, you know, the end of the ancient world and the beginning of the middle ages in around 900, that takes place as all these black paths that I talk about for grain distribution become the distribution centres for Yersinia pestis. And Yersinia pestis travels all through these regions and destabilizes international trade, sets us back 1,000 years and particularly, Europe. Sets Europe back 1,000 years into what is a kind of dark age.

And Europe is basically providing its own food and not getting its food from the Mediterranean for a while. It’s not getting get a lot of things from the Mediterranean. We see monasteries, and we see the kind of closing up of a society for 500 years. You know, a similar thing happens in the 17th century when plague ships bring about the kind of end of the Renaissance and the birth of a kind of capitalist world system that we have. But there was another plague, another Yersinia pestis that was recently discovered in science and nature 2019, the predecessor to this, 2,800 BC. And it starts just in a town that no longer exists but existed in 2,800 BC just south of Kyiv. And we can tell from Yersinia pestis inside the teeth of people who were exhumed from those places that the plague travelled from Kyiv all the way to Manchuria, all the way to Sweden in the space of about 500 years. We also know from next-generation genome sequencing that no human made that travel over those 500 years.

So, there weren’t people that could travel that distance. We know that from genetic drift that the people were genetically isolated and yet Yersinia pestis is able to…this tiny little insect is able to move all that distance. And what that says is that we had trade before we had empires. We had trade 5,000 years ago, a network of trade that no individual made that distance, but a bunch of people, you know, 40, 60 miles were sending wheat or other goods over those distances. And Yersinia pestis lets us see in the teeth of people that we had this long-distance trading network before we had empires, before we had… Well, we had writing, but not much we had, you know, domesticated animals, but not a whole lot. We had not the kind of hierarchical societies that we’re used to. But before all of that, we had long-distance trade. And that’s another reason why I don’t like that idea of food security because we’ve never been secure in our food, we’ve always depended on people over long distances for our food. And if we forget that, then we start to retreat into this sort of World War I, World War II, thinking where, you know, the access powers can defeat the allies and vice versa. And that’s a positive danger, I think.

Meb: Yeah. There are a handful of other questions I want to get to as well. But while we’re on the topic of the book, what was…you can either one or just an entire narrative or thread, but what was kind of one of your favorite or unexpected insights from the research that went into this book where there was an idea or concept that either wasn’t known to you or you said, “Oh, this is super cool. I didn’t know this.” Anything come to mind?

Scott: Yeah. I would say it’s the black paths, this chorni shlyakhyy is the Ukrainian term for it. And these black paths are described in a lot of ancient documents in old Rousse documents and things like that from 8 and 900 AD. And they describe the path of the Chumak. And Chumak was a word I liked. I don’t know why. I was interested in these grain traders, these people who were carrying ox, and they travelled in groups of about 100 with an oxen. They each carried about 2,000 pounds. And they travelled over long distances bringing grain in one direction. Sometimes leather and slaves in other directions. And folklores interviewed these Chumak in 1860s in Russia, and they said, “We’ve existed since before the ancient Greek empires.” The Chumak have crossed the planet for long before then. And that’s why we have these ancient rituals, that’s why we have these ancient horns, that’s why… There’s a lot of religious ritual that’s very poorly understood that comes out of the Chumak, these grain traders.

And so, the 2019 discoveries of this grain network showed that, in fact, you know, these must be the ancestors to the Chumak, these must have been these traders that had been travelling over long distances. But Chumak is a funny word because chuma…and this took me a while because my Russian’s okay, my Ukrainian’s not so good. Chuma means plague, and Chumak are the people who carry the goods, but they also carry the plague. So, the word is related. And this does reach interplanetary sense as well because the Milky Way for Ukrainians is Chumaks’ way, right? And it’s the path of the Chumaks, as they see it. They use, of course, the Milky Way at night to navigate, to know that they’re going in the right direction to bring grain along. So, the Chumak, if you spend any time in Ukraine, you know that the Chumak is on the coin, and the Chumak are among the fables that are really important part of Ukrainian lore. And so, I think that part of it… I had German in high school and I had Russian in college, but learning a lot of the Ukrainian folklore… And then this guy, Parvus that I write about, his understanding of these black paths, his way of putting the world together in that way made me rethink geopolitics a lot. It made me think reading Marxism a lot too because he was a Marxist, but a very strange kind of Marxist, and one that made me kind of reassess a lot of what I thought I knew about how the economy worked.

Meb: Well, that’s a perfect transition because you’ve written a bunch of books. How many? We got six? You have half a dozen now?

Scott: Something like that.

Meb: And, you know, one of something we think a lot about, in general, or at least is it kind of a story of history in my world that you wrote a book but I haven’t read it, so I want to preview. And I’m not going to say what is your favorite financial disaster in America because that’s the wrong way to phrase it. Maybe what’s the most interesting? Because some of these go back, you know, hundreds of years, and sometimes they rhyme and sometimes they’re different. Tell us some quick insights on that book because I’m putting in a one-click order on Amazon right now. So, this should be here by Friday.

Scott: This is “A Nation of Deadbeats” that you’re talking about?

Meb: Mm-hmm.

Scott: Yeah. So, I wrote “A Nation of Deadbeats.” So, that was a funny thing. Origin of that is odd because, in 2009, I guess, ‘8 and ‘9 I was reading about what was going on in the markets. And I heard a lot of people talking about “The Great Depression.” And I said, “This is not the great… You know, the 1929 depression? No. Or the ’30s? This is not. You know, there’s nothing like that.” And I said, “It’s more like the 1873 thing.” And so, the Chronicle of Higher Ed asked me to write a piece about it. And so I wrote a piece about how this thing that we were experiencing in 2008 and ‘9 was more like the Panic of 1873. And the editor sent it back and she said, “All right. That’s true. Put your money where your mouth is. Name five things that might happen if this is like 1873.” So, I said, “Well, denomination of trade might change from the dollar to the renminbi, gold might be much more valuable over time, and cash on hand would become more valuable than other stocks on hand.”

And in the space of, basically a couple of months, all the things that I predicted might happen happened. And so, then I started getting all these calls, initially from banks. First from fund analysts, and then from fund managers saying, “Tell me more about iron prices. Tell me more about cash’s king. Tell me more about, you know, why a liquidity crisis crash is different from these other crashes because none of our economists know anything about this.” And it was interesting to me and I said, “Well, why is that?” And I think part of it is that the monetarist explanation for financial panic, which comes from Milton Friedman and is more or less our standard explanation for how that you change the money supply, you can affect the economy, you change the interest rate and you can change the economy. That was Milton Friedman’s argument, and it’s now what most economists believe. But once Milton Friedman’s book came out in ’64, people dropped studying all the other crises because they said, “Well, we understand it now. There’s no reason to look at these other crises because the data’s not as good, and we’ve already solved this crisis. We’re never going to have a crisis like that again.”

And so, one of these guys, I think it was from BlackRock said, “Well, what’s a book on all the financial crises?” And I thought, “Well, there must be a book on this.” And I realized there wasn’t. And so, that’s why I wrote “A Nation of Deadbeats” was to sort of tell a story of all the other crises. And the punch line of the book, a few of them, one of them is that commodities are a really crucial thing, the commodities signal crises in a way. What the commodity is is different for different crises. Another takeaway is that personal debt is actually crucial that we think of personal debt as being something that started with a credit card in the 1970s. But actually, personal debt goes all the way back to the 1780s and 1790s with country stores and providing credit for goods. And the reason it’s called “A Nation of Deadbeats” is that it’s lots and lots and lots of small borrowers, farmers, really, who can’t make their payments for reasons having to do with rapid changes in commodity prices that then spiral out into these other financial calamities.

And so “A Nation of Deadbeats” book was a book that forced me to sharpen my financial reading skills. I had done financial history in school, but I really needed to understand bills of exchange. I really needed to understand the silver Aggio, all these other things that most historians don’t study and most economists don’t study, frankly, you know, the instruments and how the instruments are a problem, treasury bills and all these sorts of things. And I learned a lot about that, and that actually helped me write “Oceans of Grain” because I started to understand in the way in which credit instruments are crucial to understanding the economy and what capitalism is, for example.

Meb: Yeah. I mean, like, the development of future contracts, right? That’s something that very much is an ag, you know, a very big ag sort of development.

Scott: The word capitalism usually refers to Venice and Genoa in the 14th century. The development of a kind of like, not a futures market, but a kind of forward market in which, you know, the goods are going to be delivered over time and you can hold an instrument, and the instrument increases in value over time. And that’s, you know, kind of what many economists and historians would say is the beginning of capitalism. And understanding the difference between that and the modern futures market, which is an anonymous market. The forward market was you knew who the traders were. The futures market is an in… The future is you don’t know who the final buyer is in a futures market. That’s one of the key differences. And then how basically this provides financial credit, a much more labile and flexible way of providing credit to farmers than the country store was. And that’s a thing that’s really important for understanding how the U.S. becomes the king of markets by the 1870s, 1880s.

Meb: I’m not sure if we’re going through… Well, I’m not going to lead you. I’m going to… Does anything, any parallels in history kind of where we are with 2022? So, we had a pandemic, we got a war going on, we have markets kind of rolling over. And something particularly a lot of the young people haven’t experienced in their lifetime is really, in the U.S., they’ve experienced it in many other countries, but inflation. Are there any analogues you say, “Ah, this reminds me of 17 something …?”

Scott: Yeah. Let me think. Well, one of the things that we think of as invisible, but now COVID made us made visible to us is supply chains. 10 years ago, people were not talking about supply chains unless they were logistics professionals. But now we understand that the reason we go into the grocery store six months ago and couldn’t get any chicken was because of supply. Even though chicken…you know, the U.S. produces nothing but chickens, and it’s, you know, the world’s biggest producer of chickens. So, we start to understand supply chains, and I think that helps us understand what’s happened. I think just in terms of the… Inflation is I think a bad word for describing what we’re talking about when we’re talking about problems. We need to be talking about strains on those black paths, strains on internal logistics that are important for an economy. So, the World Bank, for example, and the UN World Food Program says, “If you take the cost to deliver goods in sense per ton coulometer over a certain distance inside a country and you multiply it by 689, you get GDP of that country with a 0.9 correlation.” I mean, nobody gets a 0.9 correlation like that. That’s an impossible correlation.

So, why is it that the cost to deliver goods in sense per ton mile inside a country is the GDP? It doesn’t make any sense. And I think that’s because when we’re talking about our ability to produce and consume and our ability to kind of feed ourselves and be plugged into this international world market, the speed and cheapness at which we can deliver energy over a long distance is the economy, right? So, that to me is why the paths matter. That we have a formula for economics, and inflation, and deflation, and ideas about treasury, and ted spreads, and stuff like that, but we don’t really have a geographical explanation for the economy. And once we start to do that, once we really start to understand how the economy is geographically constrained by its ability to deliver energy over a long distance, then we can talk about…you know, and this is why…

You know, just look at China, the number of high-speed rails that have been built in China over the last 10 years. That’s how you do it, right? That’s, if you can, more efficiently and quickly deliver energy over a long distance cheaply, then you build GDP. And that’s precisely what China has been doing. And so, I guess the big insight for me in the book and just in terms of crises is when we think about crises, we shouldn’t be thinking about dollars or we shouldn’t be thinking about value, we should be thinking about those chains, and what’s the cost of them? Is the price of the energy in those things going up or down? And are there ways of cheapening the delivery of those goods from one place to another? And that’s, I think what we need to think about when we think about the economy. I hope that’s a…that’s a little bit of.

Meb: That’s great. One of the things that I can’t answer, you may have some insight, but you can also just pass on this too is like as you kind of look at the landscape of the world today and look to the horizon, prediction being the wrong word, but is there anything you see as you study these crises, as you’ve written this book about ag, as we look forward, you’re like, “You know what? This seems to me to be a big problem going forward.” Or “You know what? If I could call Biden today, I would tell him to do X, Y, Z.” Or “If so and so rang me.” Any general thoughts? Pretty open-ended question.

Scott: I suppose one thing we should be paying more attention to is the China’s Belt and Road Initiative, which is very much about building those black paths with China at the center. And that this is not just a side project, this is not just an opportunity to find investment in India or Vietnam or Iran. It’s not just, you know, an attempt to build political relationships between China and the rest of the world. The Belt and Road Initiative is very much about creating an infrastructure for delivery that cheapens the flow of those goods back and forth that is a powerful economic development. And where does the Belt and Road Initiative come? It comes after 2008. It comes after China is persuaded that the dollar is the wrong currency for world trade. And China has very much tried to change that, tried to change it that maybe they created an infrastructural banking system that was a competitor to the World Bank. It hasn’t done especially well. But it’s also funded this Belt and Road Initiative, which it’s an attempt to kind of build those corridors. And I think rather than, you know, saying this is a threat to us or something like that, we as a country in the…you know, well, I’m a citizen of the world, right? Is that we need to be thinking about joining the world together.

I suppose many of my friends who see themselves as kind of on the left and Marxists and stuff like that are very nationalistic in a way and very much want to believe in blocking external goods. And the thing I’d say to them is that’s not what Lenon believed, that’s not what Marks believed, that’s not what Trotsky believed, that’s not what Parvus believed. The Marxists in the 19th century believe that free trade was the root to a world economy in which workers would be powerful and important. Somehow we’ve lost that, I think. Somehow people who see themselves as being kind of liberals or on the left have lost that internationalism to a certain extent. And I’d argue that we need to recognize that the more we join the world together, we kind of build together. And I suppose my fear is about a world war. And I believe that that’s the direction that we’re headed in, in many ways. The Head of Belarus just recently said this, that this is…he sees these signs. And he’s been sort of leaking to us Putin’s plans, thankfully, which is about control of the Northern end of the Black Sea, not just Ukraine, but potentially, Romania, potentially, even Instabul, which is not a surprise. You know, it’s been the plan for the Russian empire since there was a Russian empire. So, we need open, direct communication between these places, which are not controlled by empires, but which are open to many people and multiple buyers and sellers. And that’s the way forward. And when that closes down, when we start nationalizing or closing off those routes, then I get scared.

Meb: Yeah. As we start to wind down here, so are you teaching classes at all now? What’s on your brain on the summertime? You got the book, you burst this new book out into the world. Are you taking a sabbatical, or what do you think about now?

Scott: No. So, I’ve done like… So, since the book came out, I mean, it’s been really amazing because it’s going to be translated now in seven languages, including simplifying complex Chinese, Japanese, and Russia, and all these other sorts of things. But being on these podcasts and all these TVs, and radio stations, all over the world, not in the U.S. so much, but like South Korea and in Denmark, in Germany, in the Netherlands where they care a lot about food and those sorts of things. I’ve learned a whole lot more about how grain works and how this international trade works. So, if I could rewrite the book, there are a lot of things that I’ve learned from other experts, right? The head of the World Food Program, grain traders, commodity traders, and things like that, things that I wish I had known when I had written the book. So, it’s one of those cases where I think it’s never happened before where I learned a whole lot more about what I was writing after the book was done. And that’s exciting. But, yeah, the next project I do, I’m interested in the 66 million year ago, the KT extinction. There’s been a lot of good, new scientific research about…

Meb: What is that? I don’t even know what that is.

Scott: That’s the death of the dinosaurs, the KT extinction. But what’s important about it is that basically reshapes the world in all these ways. It’s the reason that we’re mammals and not dinosaurs is this asteroid that hit and broke into six pieces and created the Gulf of Mexico. And a lot of things that were speculation are now pretty much settled. There were something like three years of total darkness, and that killed most of the plants and all of the plant eaters and all of the things they ate, the plant eaters like T-Rex and things like that. And all that was left were the bottom feeders, alligators, and things like that, and then us. Basically, our ancestors, the mice that had very well-developed stomachs that could process almost anything, could basically eat refuse from dead animals. And so, this why, you know, mammals that can regulate their own body temperature and can digest almost anything because of our internal gut flora are the people that have survived. There’s a way in which our whole world is shaped by this reconstruction of the planet that is interesting to me, like the fall line in the United States between the hilly region, which was above ground and the ocean region, which was then underwater is where all our cities are now, are along the east coast. And much of the world is those places where the fall line is. And that has to do with this extinction 66 million years ago. So, I’m still about the black paths and about this trade, but thinking about it in a kind of larger context mostly have been playing games though.

Meb: So, I was going to say I’m going to replay that for my son next time he asks me about the…my five-year-old and say, “What’s this dinosaur thing?” I’m going to say, “I don’t know the answer, but listen to “The Meb Faber Show podcast.” We got an answer for you.” Games, what do you mean games? We’re talking board games, we’re talking video games, we’re talking mind games?

Scott: Yeah. Video games. Yeah, yeah, yeah. So, video games. You know, I’m a big Pokémon Go player because it forces me to walk all the time. And so, I do a lot of walking about five to six miles a day. And if you think about Pokémon Go, it’s a series of partial differential equations. And so, that’s the math part of me loves that aspect of the game Stellaris is this kind of world universe-building game that took me two months to figure out how to play the game. But, yeah, it’s a kind of logistics and kind of rural empire kind of game. And yeah, that’s pretty big board games with the family and things like that. But my wife says I’m much more boring now. I used to talk about Persephone and everything that I was doing research on. And now that I’m sort of finished with the book, my big white whale, I’m much less of an interesting version, she says.

Meb: Yeah. Well, look, I mean, I’ve spent a lot of time with games, but mostly they’re on the five-year-old level. But many of them are, you know, as fun and as challenging. I was at a recent hotel where they had a bunch of old Galaga, Frogger, what else? Pac-Man that we got to play for the first time. But I’m a big fan of games of all types. Scott, this has been a lot of fun. People, listeners, pick up his new book, “Oceans of Grain” on Amazon and anywhere good books are found. Is there anything, if people want to follow you, homepage, Twitter, are you…?

Scott: Yeah. Yeah. I’m on Twitter @nelsonhist. scottreynoldsnelson.com is the website, which I have to say I’ve not been updating, but I should have more links to the reviews of the book and summaries. Yeah. But Twitter has been my home. And then Facebook, of course, has been where mostly how I connect with other scholars and things like that. I’m not a big social media consumer, but it’s how I keep in touch with my old students and things like that.

Meb: And so I missed it. Are you teaching classes anymore?

Scott: Oh yeah. Oh, yeah. No, no. I’m teaching a research seminar in the fall. In the spring, I’m teaching a history of technology course. And so, that has been… I was a science person, you know, I was a math physics undergrad. And so, I was a hacker back before…back when it was you could get away with it. And part of what I am interested in is sort of thinking about technologies and how they relate to the sort of world and world economy.

Meb: Well, very cool. That’ll be the topic of our next podcast.

Scott: Sounds good.

Meb: Save some time for episode 2. It has been a delight. Scott, thanks very much for joining us today.

Scott: Meb, thank you. It’s great talking to you and great to talk to somebody who enjoys both research and leisure equally. But not a lot of people admit that. So…

Meb: Podcast listeners, we’ll post show notes to today’s conversation at mebfaber.com/podcast. If you love the show, if you hate it, shoot us feedback at feedback@themebfabershow.com. We love to read the reviews. Please review us on iTunes. And subscribe to the show anywhere good podcasts are found. Thanks for listening, friends, and good investing.

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