Tuesday, April 7, 2009

The Panic of 1819

CJ Maloney has written an excellent article on the panic of 1819 for the Ludwig von Mises Institute. Maloney points out that the panic of 1819 resulted from the same kind of central bank and banking incompetence as today's sub-prime crisis but that the policy decisions of 1819 were much smarter, more effective and more moral than Americans are capable of today. Maloney writes:

"It is the unusual that grabs the attention, and the ideas and beliefs of the majority of our ancestors on how best to clean up the mess of 1819 are vastly different from almost everything I see and hear today. From CNBC's cute little money honeys to newspaper op-eds to my coworkers on the trade desk, all cry that the government must do something. Many of the elite from 1819 believed the exact opposite — that government must do nothing.

"...In 1819 America, nobody blamed the effects for the Panic of 1819, they rightly blamed the cause; they blamed (in Caroline Baum's words) the 'friendly central bank.' As Professor John Dobson points out, 'the [central] bank's policies fueled inflation, and it was popularly viewed as a major contributor to the Panic of 1819.' After this encounter with central banks, 'hard money leadership was abundant and influential'.

"The urge to bail out debtors was fought against not only from a practical but from a moral level as well. Besides Tennessee state representative Robert Allen warning his colleagues that 'if people learn that debts can be paid with petitions and fair stories, you will soon have your table crowded' the pages of the influential Pennsylvania Aurora argued that any such bailouts would not only be economically unsound, but unjust, being a special privilege to the debtor.

"While the federal government was a heavy player in the housing speculation — having offered over $23 million in "affordable" but now mostly delinquent loans by 1819 — for the most part it was the state capitals, where much of political power still resided in America's pre-Lincoln days, that were the scenes of battle.

"And not all the states were clamoring for intervention. The Massachusetts legislature in 1820, referring to hastily passed monetary laws that forced people to accept worthless paper bank notes as if they weren't, stated 'the exchange value of notes must be regulated by the community itself, according to public wants and needs'...plus many thought that such monetary measures were pure hubris. Virginia state politician William Selden warned, 'Money itself is an article of transfer. Human legislation on the subject is worse than vain'..."

Read the whole thing here.

1 comment:

Anonymous said...

What do you think of fertility rate cycles impacting risk taking behavior in the economic sector? For example, current Baby Boomers (50-60 year olds) take financial risks due to inherent risk taking behavior.