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It's 1819 All Over Again

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April 07, 2009 – Comments (11)

The great thing about history is that we can learn to ignore it.  Here is an interesting article by C.J. Maloney on the American housing bubble of 1819 that I recommend for reading, and eventual ignoring.  Learning from history is clearly a foolish endeavor that only antigovernment terrorist enablers would ever take part in.

An excerpt from this pointless analysis:

"Amidst much hypocrisy, backroom dealing, bribery, threats, and displays of great oratorical skill, they proposed for themselves more money and power: another central bank, America's second go at the institution. (We are now on our fourth.) The new Bank of the United States was up and running by 1816, with the ostensible purpose of bringing the state banks' inflation to heel.

Instead, the men who ran the new central bank promised not to demand redemption of any state bank paper notes until over one year later. And they bailed out the insolvent state banks with $6 million in taxpayer money. The more things change, the more they stay the same.

To add injury to insult, the men who ran the central bank "jumped on the inflationary bandwagon" themselves (Dupre 2006, p. 271). Printing paper and promises with Bernanke-like abandon, within two years of its creation they had loaned $41 million worth of gold promises and issued paper bank notes redeemable in gold worth $23 million, all on top of just $2.5 million worth of gold (Dupre 2006, p. 270), a level of leverage insane enough to make a Lehman Brothers risk manager feel right at home.

"Flood[ing] the market with bank notes it could not now redeem" (Dobson 2002, p. 105) between 1816 and 1818, the supply of paper bank notes and credit on the US market grew by 40.7%, "most of it supplied by the Bank of the United States" (Rothbard 2007, p. 87). The Philadelphia and Baltimore branches of the bank would prove to be the most profligate — and the most corrupt — of all.

The economic dislocations gained steam throughout 1816–1818, and prices in real estate, land, and slaves floated upward on credit. As 1818 feverishly arrived, though, it was only the greatest of the fools who were buying. The music would soon come to an end since the postwar prosperity was built on a foundation of nothing more than pieces of paper with promises scribbled on them. In the actual vaults, there was precious little money (the pledged gold) at all."

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David in Qatar

11 Comments – Post Your Own

#1) On April 07, 2009 at 1:34 PM, 4everlost (29.35) wrote:

David,

Thanks for the link; I'll read it after I finish Human Affairs.  I'm on page 684, only 201 left ;-). 

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#2) On April 07, 2009 at 1:47 PM, Chromantix (97.62) wrote:

"They demanded taxpayer money to lessen the blow of their mistakes, legal attack on their competitors, and license to disregard their pledge to the rule of law.

 These people fell into three broad categories: the debtors looking for relief, businessmen seeking protectionist measures, and the politicians wanting power."

 

'nuff said.

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#3) On April 07, 2009 at 1:55 PM, abitare (31.77) wrote:

Good find good post. Similar but different, if you are looking for a good read, take a gander of Wealth, war and Wisdom by Barton Biggs. It is worth your time.

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#4) On April 07, 2009 at 2:09 PM, 4everlost (29.35) wrote:

Oops, I meant Human Action in my previous post.

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#5) On April 07, 2009 at 2:27 PM, nzsvz9 (< 20) wrote:

So,

What has happened before, is happening again. Tulip bulbs, dot-coms, real estate ... a bubble is a bubble.

It is the purpose of the boom-bust bubble cycle which is unclear. Schumpeter explained the business cycle; raw materials, to work in process, to finished goods, to sales - - back to more raw materials and so on. He did not describe boom-bust, but a growth-oriented spiral of ever-increasing production brought on by marginal profit in making a product from raw materials.

The boom-bust bubbles do not come from the entrepreneur, or the industrialist - - they come from the financier, in collusion with the government. Printing money beyond the expansion of the natural economy creates a glut of dollars chasing relatviely fewer goods, and a scarcity of dollars causes a collapse of economic activity (sound familiar?)

Those are the immediate effects, but the purpose is still not explained. Why inflate? Why constrict? Why monetize? Why destabilize? One could only surmize that the result of the boom-bust is the accumulation of money and power in fewer hands. The financiers and the government.

Sound familiar?

Known by my fellow commuters as nzsvz9

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#6) On April 09, 2009 at 7:42 PM, Mary953 (77.81) wrote:

A point of curiosity, as he is called King Andrew and ridiculed for it,  Does this particular book move through history all the way up to the point at which 7th President Andrew Jackson destroyed the bank?  Among the repercussions of this heinous act, The Whig political party was created (perhaps most perfectly described as the "Anti-Andrew Jacksonians") and for the first and only time in its history, the United States not only balanced its budget, but ended the year with a surplus.  Jackson, proving himself to be a very different sort of politician, returned the 'left-over' money to the people because it was theirs to begin with!

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#7) On April 09, 2009 at 7:58 PM, kushme (23.63) wrote:

I wish there were more men like Jackson.

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#8) On April 09, 2009 at 8:14 PM, JibJabs (89.29) wrote:

"Learning from history is clearly a foolish endeavor that only antigovernment terrorist enablers would ever take part in."

Is this facetious? I hope so.  

"I wish there were more men like Jackson."

Speaking of history, had Jackson lived in the information age with a modern press corps (despite all its inherent flaws), people would be more likely to recall the callous displacement of Indians from their land (all to satiate a gold rush) that led to thousands of deaths (the Trail of Tears). That is an action bordering on genocide. Praise of Andrew Jackson must reconcile with his actions towards the Native Americans that did not barter their land for trinkets.

If that does not bother you about him, then perhaps you would be interested to know that he egregiously disregarded the Supreme Court to dislocate the Cherokee and other tribes from their land. The Court ruled that the land (filled with gold) rightfully belonged to the Cherokee Indians; Jackson famously responded "the Supreme Court has made its decision. Now let us see them enforce it." I do not see anything admirable in those actions.

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#9) On April 10, 2009 at 10:19 AM, whereaminow (< 20) wrote:

JibJabs,

Agreed. Jackson had his flaws. But what does that have to do with Central Banking? Did Central Banking protect the Indians? Am I missing something?

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#10) On April 11, 2009 at 12:09 AM, Mary953 (77.81) wrote:

Jib - Of course I know it.  And hate it.  And I could give you chapter and verse on his Waxhaw childhood, early law career, military, marriage, TN political careers or give you a fairly good tour of his home.  Because of his marriage into one of the leading political and early pioneering families, I can even give you a fair genealogy.

But I was asking about his absolute distrust (and total hatred) of a Private Central Bank of America which consolidated a massive amount of wealth and power into the hands of a few politicians and businessmen. 

He used his popularity with the "common people" to overthrow a small group that had an iron grip on the economy of the nation.  He used the same absolute power to ram through displacing the Cherokee, working to rid himself of political enemies, and anything else that he felt was needed. 

In the end, Jackson became the symbol of westward expansion and chose his successor, Van Buren.  He then convinced Polk to run and helped him win.  Polk fought a war on one front and came close to fighting a war on a second, but left office with a United States that stretched from Atlantic to Pacific and covered the continental 48 contiguous states. 

In this forum, though, my curiosity is mainly focused on how others view Jackson's handling of a situation that parallels our current situation.  Rather than bailouts, he opted to throw the scoundrels out (and I am certain his language was much more colorful.)

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#11) On April 13, 2009 at 5:39 PM, OleDrippy (34.93) wrote:

Good stuff, thanks...

 

Just thinking out loud, but what alternative should we embrace? Zero inflation? At what price should we deem "appropriate"? If we revert back to the gold standard do we not then place our monetary system in the hands of miners (or as Mark Twain called "a liar standing next to a hole in the ground"). At first glance, I figure little would change other than power shifting from one small group of individuals to another. I would also guess that bankers would still be in the thick of it, regardless.

 

Just thinking out loud.

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