As the “Lords of Finance” has often been remarked and discussed here, I thought I would link to a review of Liaquat Ahamed’s newest book, “How the Gilded Age Economy Broke The World”. I have not read it yet, but his earlier book was so well researched and convincing that I will be purchasing this one (hard cover!) in the next day or two.
While the title is self-explanatory, I thought to extract a few lines from the Times review:
In the late 19th century, the world endured a phenomenon never seen before or since: a continuous fall in prices across the globe. The long slide lasted for a quarter-century and was kicked off in 1873 by an international financial crash. Before the 1930s, this period of deflation, bankruptcy and instability was known as “the Great Depression.”
But it was a strange kind of depression. By many indications, the economy took little time to recover. Within a few years, trade increased, technology progressed rapidly and real wages mostly rose. Cheaper food and fuel meant higher average living standards.
And yet inequality reached a peak that has only been surpassed in recent years. Large swaths of people were left behind when markets stabilized after the initial shock, fueling resentment that seeped into global politics for decades to come.
The review goes on to list a few of the proximate causes of what was, at that time, called “The Great Depression”. (The name would later change to “The Long Depression” after the appearance of the catastrophe in 1929-1940). [In the spirit of rhyming I note that “The Great War” simply became “World War I” with the arrival of that even Greater War in 1939.]
In Ahamed’s expert telling, the problems began with a series of seismic movements of money: the 1848 California gold rush, the construction of railroads in the ’50s and ’60s, the accumulated debts of the U.S. Civil War and the payment of French reparations to newly united Germany after the Franco-Prussian War of 1870. Together these developments stimulated decades of growth.
Soon, more people had more cash to invest in more risky things like foreign stock markets. International loans ballooned and governments, especially in the Middle East, borrowed cheap money to fund ambitious projects of varying degrees of plausibility. Stock and banking bubbles inflated in Vienna, Berlin and New York, and they burst the way bubbles often do, when some big, corrupt firms went spectacularly bankrupt. At the same time, the custodians of the financial world made a tremendous mistake:
One of the major causes of the Long Depression was deflation. Most of the world was on the gold standard (plus some silver) and the global economy was growing faster than the supply of gold.
Yes, that’s exactly what the author identified in the next sentence after the quoted portion. The Depression didn’t really lift until new supplies of gold were identified and mined in places such as South Africa and Alaska.
What we consistently forget in our modern, urbanized age is that the majority of people lived in rural areas or small towns, and most survived through agriculture or in businesses directly tied to agriculture. Deflation was (and is) devastating to the farm economy- their debts were now worth more. Moreover, hard currency was more difficult to acquire as there was less to go around with the demonetization of silver. This squeeze was ruinous and the impact was widespread.
This period in time is precisely why, in 1908, when my family settled into their homestead in Missouri (after the 3rd family wealth ruining bankrupcy since the 1840’s), they immediately began stuffing coins into mason jars to bury into the ground. 3 crocks, (5 gallon and two 3 gallon containers) were stocked full of liberty dollars and other period gold.*
It was forgotten about for 3 generation until we discovered it again after(… you guessed it) another family bankruptcy.
Luckily, the family had the means to buy the homestead (but not the 200 acre plots around it) again.
That stretch of unkind “luck” really leaves a mark.
My grandfather refused to grow the farm or take risks - at all. He nearly bankrupted the family again in spite of a very large workforce (family) available to coerce dollars from the land.
← bucked bales, collected eggs, minded piglets, calves and just about every other type of grain and livestock as determined by my grandfather. – and I cherish every minute of that era - even if I didn’t love it at the time.
*those coins were enough to buy the farm back from the bank. If the family had been able to hold on to it today, the junk silver coins would only buy One Quarter of that land.
The local and state governments were deep in debt. The social services became tough to come by. Later, Truman would begin to pick up the state and local bond issues. The 1950s were a very expansive time for the US economy.
We are talking about the 19th century. No Federal Reserve. Little to no government-run social services. No income tax (the Civil War version expired in 1873). Harry Truman was born during the Long Depression (1884) but didn’t have much influence seeing as he was a child.
Got you. I am confusing the “long” depression with the great depression.
During the Great Depression gold was confiscated. There could be different takes on that. The more important thing was the industrial state’s product became the backing of the currency.
Odd thing to bring up. Because we are producing very little and going into a depression. Our reserve status has depended on China’s production.
An excellent question. Perhaps the book explains this.
In the U.S., one would need to read about the 1873 Coinage Act that ended bimetallism.
For an excellent history of the U.S. social and political movement known as Populism that emerged from the Long Depression, there’s The Populist Moment by Lawrence Goodwyn.
Amazing to think that “bi-metallism” was such an important issue that it deserved the kind of attention paid to it during that Presidential campaign. We look at it now and scratch our heads. One group was saying “Only gold counts!” And the other was saying “No, silver should count too!”
What an odd way of framing monetary debate policy! Seems to me that enlarging the money supply would have lead to better outcomes, not just for farmers but for everyone. Oops. Jennings lost.
While we tend to focus on bimetallism, the Populist Party had a much broader understanding of the forces that suppressed working people and an expansive reform platform. For example, reformers in the late 19th century had a better grasp on the crucial difference between earned income and unearned income, a difference that reformers today would do well to consider and to frame in their analysis of economic ills. They also had a much keener understanding of the dangers of monopoly power; we seem to have forgotten this or perhaps we’ve lost interest. The monopolists, however, have not.
Not to get political but to get cultural. We ran two women for president and the women would not give them a majority of their votes. The detour is painful.