Posted on September 30th, 2008 by Anthony Comegna
I’ve decided I’m going to keep a running theme for many (probably most) of my posts from now on. As an historian, I find my work in the sources of the past and the analysis of my fellows. For this series of posts, which I will call “Wisdom From the Old Republic,” I will report my findings from primary and/or secondary sources communicating the wisdom of libertarian themes.
My last post–and this post–dealt with Jacksonian purist editorial writer William Leggett and the credit induced boom-bust cycle of the 1830s. Because I am engaged in in-depth research on Leggett, most of my initial posts in this series will be from Leggett and since I am profoundly immersed in the Austrian theory of the business cycle (thanks to the current crisis) and I am currently reading Leggett’s writing specifically about banking, expect the next few posts on Leggett to be solely concerned with banking and the business cycle.
In the following segment from Leggett’s article “The Money Market and Nicolas Biddle,” Leggett explains the nature of the crisis and the effect of further inflating the currency to purchase more debt from New York banks to alleviate the bankrupt position of said banks:
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| What has produced the evil state of things under which the community now groans? A too wide extension of credit, far surpassing the demands of healthy and legitimate business, and diffusing itself to all sorts of chimerical enterprizes. The legitimate business of a country is measured by the amount of its exportation and the domestick consumption of its own products. When it exceeds this limit it becomes unhealthy speculation, certain to terminate, sooner or later, in revulsion and ruin; as the machine, driven beyond the rate of speed fixed by the laws of its mechanism, is sure to be thrown out of repair, if not broken all to pieces. That this is the case with our community is a position too self-evident to require argument. The plan of relief, as it is called, which is now proposed, is a mere plan to put off the day of payment of the immensely over-inflated amount of debt. But the means of procras[tina]tion are of the most expensive kind. Those who are to receive the benefit of the extension of credit, will be obliged, in the nature of things, to pay prodigious rates of interest for the present funds they realize, and the day of ultimate payment will find them less able to meet their obligations than they are now. Those whose imaginary wealth consists in houses and lands held at a nominal value far exceeding their intrinsick worth, will not suffer the bubble which they have so long fancied actual substance, to burst into empty air, as long as they can keep up the sparkling nothing by forced loans, procured at any rate of extortion. Neither will they retrench their luxurious style of expenditure, assumed in the confidence of sudden wealth. The shock which is thus deferred will thus fall at last with accumulated force. But in the meanwhile one set of creditors will be substituted for another. The banks, which, if the crisis were now to take place, would sustain their share, or a share, of the loss, will, in the interval of prolonged credit, take good care to entrench themselves behind triple securities. The foreign creditors, in extending indulgence, will be equally on the alert to secure ultimate payment; and the blow will finally fall on the mechanick and labourer, on thousands of general creditors, who, if men were now suffered to experience the natural consequences of their rashness and folly of speculation, would come in for an equal portion of indemnity. |
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II.12.4 |
| It is our s[i]ncere conviction that the proposed measure of procrastination, and any measure of procrastination, can be followed only by an increase of ultimate evil. That evil may be spread over a wider surface, but it will not be diminished in amount. The old saying, that the hair of the dog is a cure for his bite, will be found as false in its present, as in its more usual application. It is seldom the same thing possesses utterly opposite qualities. There is a new theory in medicine which administers as a remedy that which caused the disease. The merchants and Mr. Biddle are now for applying this theory to business. An excessive inflation of bank credit caused the evil; and they now propose a still further inflation as the cure. The traveller who warmed his frozen hands with his breath in the cave of the Satyr, and afterwards blew in his porridge for an opposite purpose, excited the admiration of his host. We shall not less admire the miraculous qualities of Nicholas Biddle if the breath of his nostrils can produce such contrary results. The frog, in the fable, when he was blown up to unnatural dimensions, finding himself in pain, asked to be still further distended; but he was destroyed, not relieved, by the experiment. When the rain for forty days and forty nights covered the earth with a deluge, it was not a continuation of the storm that caused the waters to subside. We doubt if the community can be rescued from the dreadful consequences of a deluge of bank credit, by a further effusion from the fountain of evil. |
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I recently came accross your blog and have been reading along. I thought I would leave my first comment. I dont know what to say except that I have enjoyed reading. Nice blog.
Tim Ramsey
Tim,
I appreciate the kind words! Keep reading along and I’ll keep writing!
Deal?
“The legitimate business of a country is measured by the amount of its exportation and the domestic consumption of its own products.”
I fully agree, we used to be the ‘breadbasket of the world’. Now we are a net importer of food! This is one of the main reasons I post so much about gardening. It makes me feel that I’m producing SOMETHING. Even if it isn’t something I’m exporting.
Our economy is based on consumerism and debt, it’s absolutely terrible. The government can only prop this up for so long.