JIM MCNIVEN: THOUGHTLINES
There are a lot of rough parallels between events in history that suggest that what one generation learns is forgotten over time. One of these is between the political/financial events in the United States between 1830-1850 and 2000-2020.
In the first, a President was elected in 1828 pledged to let the charter of the Bank of the United States lapse in 1836. The Bank was the closest thing we have today to the Federal Reserve system, and Andrew Jackson, representing the ‘soft’ money frontier, was determined to eliminate the ‘hard’ money Bank. This institution kept the frontier banks from printing all kinds of banknotes and contributing to the instability of American finances. Proper banking practice required, then as now, that loans outstanding should not exceed 10-12 times deposits and the Bank was rigorous in discounting the value of notes from institutions that were not acting responsibly.
Jackson’s fight with the Bank was successful and the frontier State banks, some of which were carting trunks of gold ‘deposits’ from one bank to another ahead of State inspectors, began issuing all kinds of paper money that could theoretically be cashed in for gold or coin, which of course, didn’t exist. By 1836, the speculative credit bubble began to lose air and the economy crashed in 1837.
In the early 2000s, the Republican administration of George Bush, likewise, was promoting a less-relaxed financial regulatory regime in order to stimulate growth. Easier credit was seen as a means to this end. Financial regulators, including federal bodies like Fannie Mae and Freddy Mac encouraged the private sector to make credit easier for potential homebuyers (read: frontier settlers) to access housing.
As well, the Wall Street financial houses began to invent new debt instruments that effectively pyramided loans upon loans, based on housing and new business creation. It was not uncommon for their leverage to exceed 33:1.* By 2006, the speculative credit bubble began to lose air and the economy began to totter in 2007 and crashed in 2008, during that year’s election campaign. Barack Obama inherited the mess, but it was hard to blame it on him — not that this wasn’t tried.
In March, 1837, President Martin Van Buren had just taken office when the wheels began to come off the financial wagon. Since Jackson was a war hero and strong leader, Van Buren got the blame for the mess and was defeated by Harrison in 1840, who promptly died a month into office. Vice President John Tyler, Harrison’s successor, managed to anger both Congressional parties and spent the term in one political fight after another. Meanwhile, the economy healed slowly.
Beginning in 2009, President Obama had a two-year ‘honeymoon’, where his party managed to put in place stronger financial regulation, though the reverberations of the American crisis were felt world-wide, inhibiting the American recovery. By 2012, the Republicans, deeply hostile to the President, had gained power in Congress and much of the rest of Obama’s eight years in office were consumed in political wrangles. Meanwhile, the economy healed slowly.
Tyler was followed by a ‘dark horse’, James K. Polk, in 1844. Polk came in as the Congress acted to admit Texas to the Union, prompting a war with Mexico. He was also an advocate of the extreme American position on the Oregon Territory, which claimed the whole northern Pacific coast to the border of the then Russian colony of Alaska. This conflicted with British claims to much of this coast and the American rallying cry went forth of ’54:40 or fight!’.
There was some doubt about whether the American Army could defeat the Mexicans, since the US had not had a serious conflict in 30 years, but no one was under the illusion that another ‘War of 1812’ would go well with a colonial power that was subjugating India and southern China as well as parts of Africa, and whose Navy was supreme. Polk cut a deal on Oregon, splitting the Territory at the 49th parallel and then went after Mexico. Needless to say, the economy was generally healed by then.
Now we have a ‘dark horse’ President-elect who appeals to American nationalism, much like Polk once did. I doubt that he has 1840s-style territorial ambitions, but some sabre-rattling in various directions can be expected. The economy has been generally healed by now, but he intends to super-heal it.
I don’t want to follow my parallels between the mid-1800s and today into the future. Polk was the last of the strong Presidents before Lincoln and the Civil War. He also just predated the huge immigration of Catholic Irish into America during the Famine, as well as the equally huge German migration (both Protestants and Catholics, but all not English speakers) that came after the failed revolutions of 1848.These sparked some serious nativist reactions in 1850 and beyond.
I suppose that drawing parallels with history is both attractive and yet misleading. We do not live in the post-Crash world of the 1840s, when American influence in the world was negligible, nor is Manifest Destiny the big thing it was then.
We do live in a world where North America makes up but 5% of the global population and 25% of the global economy. We are almost all interconnected in an immediacy that those in the 1840s hardly knew, even on different floors of a New York slum. James Polk and his contemporaries have little to teach us about this reality, except that human beings do tend to replay the general themes of the past, when faced with similar problems. There are some of these themes that we need to avoid.
Copyright Jim McNiven 2016
* What this implies is that if a mere 3% of a bank’s loans were to default, the bank was bankrupt. At 10:1, it would take over 10%, a reasonable risk. The whole system depends on depositors’ confidence that they can withdraw their deposits whenever they like. Lose confidence, and there is a ‘run’ on the bank.
James McNiven has a PhD from the University of Michigan. He has written widely on public policy and economic development issues and is the co-author of three books. His most recent research has been about the relationship of demographic changes to Canadian regional economic development. He also has an interest in American business history and continues to teach at Dalhousie on a part-time basis.
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