Economic Panics of the 19th and early 20th century

Economics Economics Questions
1

I was looking around about panics before the Great Depression, mainly before the Federal Reserve. I’m getting ready to write a paper on this, and I need to explain how these were caused by the ABCT, which involves me to write more about the government involvement as well as the FRB, rather than just saying “Oh, frb did it”. Secondly, which is somewhat more hard, I need to prove that doing nothing (as it letting the economy sort itself out during the recession aftermath), benefited the united states. Besides the Great Depression, I’m limiting my panics to 1819, 1837, 1857, 1873, 1893, and 1907( I have enough on 1921).

Rothbard has written on 1819 and 1837 somewhat extensively, and 1873 is touched upon a good deal. I understand that 1819 was the dealings of the first and second bank, 1837 the second bank, 1857 (England??), 1873 Greenbacks/ Quasi central banking system in U.S. What I need that seems almost eerily missing from Austrian records are 1857 and 1893. Supposedly in 1893 there was the highest unemployment rate (18%) before the Great Depression in the 30s, and I’ll need to show how laissez faire helped us. The Panic of 1857 is not really touched upon at all, and I’ve got to do that two since we had only the independant treasury system.

Any tips with these two, as well as anything else you’ve got? I’ve got alot of good research on the boom aspect, but then the bust and subsquent recession is somewhat shaky. I need to prove how the economy reorganized itself for the better after all of these. Unemployment statistics would be fantastic.I’m just looking for any tips, books, links, and places I can go with reasonable information with statistics and such.

Thanks.

PS I have Rothbards Mystery of Banking, Case Againist the Fed, and History of Money and Banking online. Most of his accounts, save for 1873 and 1837, don’t really talk much about after sometimes. He always says the Panic ended ____ and just left it at that sometimes. I need to know why (with statistics).

.

2

Huerta de Soto should mention them very briefly, I’m not sure. I’ll look for some more in depth works later but I suggest just typing the dates in the Mises Institute search function. If that doesn’t work, or you don’t find anything substantial search Wikipedia for basic information. Another option might be looking at the foot notes or bibliography in Rothbard’s or Huerta de Soto’s book, or any other author that covers this sort of thing. If none of that works you could try emailing Mr Tucker as I’m sure he’ll have some resources concerning the subject. If not Mr Tucker than another scholar of the institute will for sure.

When all that fails try Google if you haven’t already.

As I said I’ll try finding more later.

3

I know the 1893 depression was caused by the MASSIVE overexpansion of the railways, brought on by the land grants that were given out by the government.

4

Thanks for some of the help Giles. I took your advice and looked on the website, and didn’t really get anything on many panics (especially 1857 1873 and 1893/1907), and anything that was on it concentrated more on the “boom” aspect rather than the bust/recession. Some of the unemployment statistics are very warming, especially to the laissez faire cause when you realize the (see my table below) unemployment hovered in double digits, (and at a high of 18% at one point to boot) during the panic of 1893 for several years. I also recall somewhere that GNP declined 7 percent. Not to mention in 1873 depression there was 14 unemployment which lingered for a couple of years. Regardless of increases in production and wages during a time period (which is good, don’t get me wrong), those unemployment statistics are not good. EVeryone might want to look at the unemployment statistics, since the defense can easily be brought up that doing nothing to “stimulate” the economy is still bad because look at what laissez faire did in these panics.

The ABCT seems to be right on the “boom” aspect, and the “bust/recession” aspect seems good in theory, but not much work is ever done on recessions except for the Great Depression.-hopefully there are some explanations for high unemployment levels during these time periods.

Year

Lebergott

Romer

1890

4.0

4.0

1891

5.4

4.8

1892

3.0

3.7

1893

11.7

8.1

1894

18.4

12.3

1895

13.7

11.1

1896

14.5

12.0

1897

14.5

12.4

1898

12.4

11.6

1899

6.5

8.7

1900

5.0

5.0
5

Do you go to college? If so, see if you can find some history texts on the subject and glean out information any way you can. Rothbard mentions how Congress allowed banks to suspend specie payments throughout the 19th century, which no doubt was an incentive to expand credit. The Panic of 1857, for example, was precipitated by gold coming in from the West. This probably spurred credit expansion more than before. Here is what I found about the Panic of 1893:

During the middle years of the republic (1865–1912), the Republicans saddled the country with the National Banking System. While Murray Rothbard has correctly diagnosed its built-in inflationary mechanisms and pyramidal structure of credit creation, one would be a fool not to feel nostalgia for its heyday (apart from the years before specie payments were resumed in 1879). The country was on the gold standard, and national bank notes were convertible into gold (at any national bank or the treasury). The banks were under legal constraints as well. They had to maintain a 25 percent reserve for all deposits. They could make no loans on the security of real estate. Every note issued had to be backed by a federal bond on deposit with the treasury. Furthermore, in the event of insolvency, stockholders were liable for the full face value of their stock to reimburse depositors. Nevertheless, it remained a fractional-reserve system, and the inflation (though moderate by our standards) was sufficient to contribute to panics in 1884, 1893, and 1907.

6

My guess is that for Austrians it is essentially that is the boom that is most interesting, especially in relation to the other schools. In the sense that AE explains the boom as the cause of the crisis and explains that the best way to deal with the misallocation of capital is to let the market process and the price system work. On the other hand most other schools of thought think that depressions require government intervention to be resolved and as such place more emphasis there, largely as a result of disconnect between microeconomic and macroeconomics. Also, other schools tend to be more empirically oriented. Given this you might want to check mainstream journals for statistics or information they may be more informative.

Despite this I looked through Huerta de Soto’s section on empirical evidence of the business cycle (Chapter 6, Section 18 if you’re wondering, the book is available on PDF), he mention an individual names Maurice Niveau referring the reading to his work for “a more detailed historical outline of the crises and economic cycles from the dawn of the Industrial Revolution until World War I”. Unfortunately I don’t think his work is in English (it’s in Spanish and French, I think).

Although you said you’re comfortable on statistics for the two crises in the 20th century there is this book which could provide you with plenty of information concerning employment specifically. Professor Huerta de Soto also mentioned a paper called “The Recession and Austrian Business Cycle Theory:
An Empirical Perspective", by William Butos. Although, I’m not sure how easy it may be too find, but it looks like it could have some promising results. There’s also “Empirical Evidence for Hayek’s Theory of Economic Fluctuations” by Wainhouse, once again I tried searching quickly and I was unable to find it.

As for the cause of unemployment, the real cause of unemployment following the crisis is almost always inflexible labour markets, either due to union activity of various forms of regulation. As such, if you want to find the answer for why this particular recession had such high unemployment check for labour legislation or the activities of unions.

Failing this, there’s plenty of people you could email who would be willing to help and would be a whole lot more useful than I was.

7

Thanks for your information guys, but alas I’m off to a bad (and lugubrious) start. I tried typing in Panic of 1873 [or 1893] with Austrian [or Libertarian] in yahoo and didn’t get much useful things, the only things I got were actually attacks againist Libertarians because the panics were so bad. In Rothbard’s A history of money and banking, he has about one to two paragraphs for the actual 1873 recession, he says that there was an increase in output and slight increase in the money supply (he references Milton Freidman, and I don’t know how reliable his statistics are to “non libertarians” [:^)] ). Curiously I can’t really find any books on the 19th century panics that I know are pro free market/libertarian; 1818 (Rothbard I guess, haven’t read it and need to diversifty sources), 1837 (Temin Jacksonian economy?), 1857 (barely found at all), 1873/1893 (nope), 1907 (generally Federal Reserve stuff), 1921/1929 are the most common grouped together.On amazon and such there are books, but I simply don’t know A) If they will have statistics that support my claims, and B) I don’t want to buy random books that I might not get use out of (they are expensive, especially in these times).

1921 and 1929 are always seen as “well, we did nothing in 1921 and looked what happened, then we interfered in 1929 and see what chaos we caused”. But there never is much talk about the other panics, especially on their duration of the recession, which seems to be a major weakness.

I contemplate on taking your advice to emailing someone (such as a professor), but I don’t really want to bombard someone who has no connection with me a huge rant on panics :frowning: )

Maybe its just me, but I find it critical (especially with the people I talk to), that we don’t have a solid defense on these times.

I’ll keep looking though :slight_smile:

8

Maybe you should email an Austrian school or some other libertarian economist/historian/philosopher? Personally, if I go through with college, I plan on focusing a lot on economic history and digging through historical records to more accurately explain all of these panics from an Austrian POV.

9

There’s an essay by Scott Trask on this site concerning 1837, you might want to check that out, I think he also covers a later depression but I forget the date, search his name in the site if you already haven’t.

As a nobel prize winner I can imagine that he’d be fairly reliable. You should look at it anyway, especially since he wasn’t an Austrian, I don’t imagine your teacher would be able to accuse you of bias.

Provided you have an adequate enough grasp of Austrian theory I can imagine that you’d be able to point out why the statistics may be misleading. I don’t think that’s any reason not to buy them.

You should do it, I’m sure they’d be very willing to point you in the correct direction.

10

Found this, hopefully it helps…

11

Has anyone read any of these books? As I’ve been snoooping around I’ve seen these sources used.

Encyclopedia of American Economic History- I’ll be really suprised if anyone has read it. So far I’ve seen Rothbard use it in his first essay of A history of money and banking. On Page 161 when talking about the late 19th century, he states "The Encyclopdia of American Economic History calls the period under reveiew “once of the most expansive in American history. Capital investment was high;… there was little unemployment and the real costs of production declined rapidly.” He never has a source for the quote though (so I don’t know if he took that from another source he listed). The three volume mammoth ranges in the $30 if I get them used and cheap somewhere.

A Monetary History of the United States- a book by Milton Friedman, but a free market perspective nonetheless. He uses alot of statistics that everyone (including Rothbard) seem to cite, as Rothbard mentions it frequently in a his book mentioned above. Talks about the increases in output/productivity during the late 1800s which I need.

A New Economic View of American History- In Thomas Wood’s new book, Meltdown, he cites this (see page 174). He cites from the book a statistic that manufacturing and agrictultural employment grew during the alleged 1870’s depression. I want to see it for my own eyes, and this (along with Encyclopedia of American…) seem to be huge volumes of text with probably very little libertarian/Austrian/free market feel to them.

**Crisis and Leviathan-**by Robert Higgs. By reading a small review and looking at its table of contents, I can see he talks about the Panic of 1893 and our government’s response to it, which if it contains the right information is an absolute jewel to me. If anyone has read it, how is that part of the book? How in depth does he go into the boom/bust aspect of the recession and our government’s response. Does he talk about earlier recessions/Austrian theory at all?

All of these books, depending how I get them, are very expensive, definately if I get them all. Can I find any of these online?

12

I can imagine that a library would most definately have the first two, and quite possibly the third. So you might want to check a local library, if even betten if you’re in university your university library will almost certainly have the first two. As for The Meltdown, why don’t you just email Professor Woods, I’m sure he’d be more than obliged to help you.

13

I did email Professor Woods via his webiste a couple of days ago, and haven’t heard back from him as of yet (Don’t know how busy he is, nor can I spam him with questions [:P]) http://www.thomasewoods.com/contact/ . Whats a library? Are those the places with all of those books?

:slight_smile:

Thanks for the help as usual Giles, and If anyone has read Crisis it would be a great help as well. Thanks.

14

Try this one: http://www.thefreemanonline.org/featured/the-silver-panic/

15

Thanks alot man. I appreciate you finding this for me. For the Panic of 1893 I’ll use some side information, Higg’s Crisis and Leviathan, and anything else if I need to (I just ordered Crisis on Amazon). Right now I’m working on the Panics of 1857 and 37 in my report. I came across Historian Scott Trask’s research which seem to be good Austrian information. Alas I found two different sets of information for the same period.

Here is the thread I made yesterday (The links to his articles are in there for anyone who is curious about these Panics)-help would be appreciated if someone could help me figure out why his two sets of data for 1833-1837 are different. As always, Thanks

https://forum.freecapitalists.org/t/historian-scott-trask-panic-of-1837-and-panic-of-1857/5015/3

16

I just tracked down your comment, which I did read and then forgot to reply to. What with the book and all, I can’t keep up with everything. My view is this, though it won’t satisfy anti-Austrians, I suppose: the key factor is to link the boom to credit expansion, to show that the same contributing factor is always present. The bust then becomes less important, since the important thing is identifying what causes these unsustainable booms. Then you essentially wind up with a theoretical case: knowing what causes the boom, knowing what the market is trying to do during the bust, and knowing further than government interference can only impair rather than enhance that process, we can conclude that government intervention would not have made the bust any less painful (except at the cost of holding the recession off for a few years, when it will be worse). The real lesson then becomes: don’t start credit-induced booms in the first place. We need savings-induced growth.

17

http://www.abebooks.com has Encyclopedia of American Economic History for $6 and

The Fallacies of Monetarism. An Analytical Review of Friedman and Schwartz’s A Monetary history of the United States, 1867-1960.

and almost every book I’ve looked for there.

18

Woah. A real Austrian school economist just came in to comment on this thread. What a honor.

Perhaps the best way to convince non-Austrians would be to try to dig up information about how much credit was created out of thin air preceding the bust. That would essentially prove the ABCT to positivistic minded individuals.

19

Wow (again). Thank you for replying to two of my threads. I appreciate you taking the time and diggin up my email to answer my question.

20

Here’s something I found from a website that gathers historical events when it comes to the State’s involvement in the economy:

  • 20/09/1873 (September 20 1873) Panic of 1873; Market Crash (U.S.) Fraud exposed in 1872 campaign, railroads, homesteading, Chicago (Peshtigo) building
  • 1873 Depression
  • 01/1882 (January 1882) Market Crash (France)
  • 11/1890 (November 1890) Market Crash (England) Lender of last resort: Baring Liabilities, Bank of France, Russian gold loans to Britain, Argentine clearing of southern lands, Brazil, coffee, Chile, nitrates, South Africa, gold, Argentine securities, private companies going public, Goshen conversion
  • 20-21/03/1893 (Spring) (March 20-21 1893) Market Crash (Australia)
  • 05/05/1893 (April 05 1893) Market Crash (U.S.) Panic of 1893; Repeal of Sherman Silver Act
  • 27/06/1893 (June 27 1893) New York Stock Market Crash
  • 1893 Depression

website: http://www.enterprisecorruption.com/?page_id=7

Note “Repeal of Sherman Silver Act” which lead me to investigate this need for legislation, thus, focus on silver and I find this in wiki on Panic of 1893:

----First this: “This panic is sometimes considered a part of the Long Depression which began with the Panic of 1873,[1] and like that of earlier crashes, was caused by railroad overbuilding and shaky railroad financing; which set off a series of bank failures. Compounding market overbuilding and a railroad bubble was a run on the gold supply and a policy of using both gold and silver metals as a peg for the US Dollar value.”

So a railroad bubble due to State intervention I’m sure, but I’m sure you can find that somewhere.

----Secondly this “run on the gold” I find also a run on the silver here (same wiki article): “As concern of the state of the economy worsened, people rushed to withdraw their money from banks and caused bank runs. The credit crunch rippled through the economy. European investors took payment only in gold, depleting US gold reserves and threatening the value of the US dollar,[citation needed] which was backed by gold. People attempted to redeem silver notes for gold; ultimately the statutory limit for the minimum amount of gold in federal reserves was reached and US notes could no longer be successfully redeemed for gold. Investments during the time of the Panic were heavily financed through bond issues with high interest payments.”

So also note here, bank runs in which gold and silver was being depleted. Why? Fractional reserve banking, in other words, dishonest banking practices. There’s much in that quote. Also note “credit crunch rippled through the economy”, and “Investments during the time… bond issues.” I’m wondering what “bond” and who leant these bonds? Was there government regulation or interventions by the State to push for a railroad bubble, credit bubble, and bond issuance? Also the Sherman Silver Act and I noticed a McKinley Tariff Act (which by the way wiki mentioned these are sometimes blamed for the crash) and those are Acts of Congress/State.

Hope that helps.