The High Cost of Financial Panics

Roman emperors and American presidents alike have struggled to deal with sudden economic crashes

ILLUSTRATION: THOMAS FUCHS

On January 12, 1819 Thomas Jefferson wrote to his friend Nathaniel Macon, “I have…entire confidence in the late and present Presidents…I slumber without fear.” He did concede, though, that market fluctuations can trip up even the best governments. Jefferson was prescient: A few days later, the country plunged into a full-blown financial panic. The trigger was a collapse in the overseas cotton market, but the crisis had been building for months. The factors that led to the crash included the actions of the Second Bank of the United States, which had helped to fuel a real estate boom in the West only to reverse course suddenly and call in its loans.

The recession that followed the panic of 1819 was prolonged and severe: Banks closed, lending all but ceased and businesses failed by the thousands. By the time it was over in 1823, almost a third of the population—including Jefferson himself—had suffered irreversible losses.

As we mark the 200th anniversary of the 1819 panic, it is worth pondering the role of governments in a financial crisis. During a panic in Rome in the year 33, the emperor Tiberius’s prompt action prevented a total collapse of the city’s finances. Rome was caught among falling property prices, a real estate bubble and a sudden credit crunch. Instead of waiting it out, Tiberius ordered interest rates to be lowered and released 100 million sestertii (large brass coins) into the banking system to avoid a mass default.

But not all government interventions have been as successful or timely. In 1124, King Henry I of England attempted to restore confidence in the country’s money by having the mint-makers publicly castrated and their right hands amputated for producing substandard coins. A temporary fix at best, his bloody act neither deterred people from debasing the coinage nor allayed fears over England’s creditworthiness.

On the other side of the globe, China began using paper money in 1023. Successive emperors of the Ming Dynasty (1368-1644) failed, however, to limit the number of notes in circulation or to back the money with gold or silver specie. By the mid-15th century the economy was in the grip of hyperinflationary cycles. The emperor Yingzong simply gave up on the problem: China returned to coinage just as Europe was discovering the uses of paper.

The rise of commercial paper along with paper currencies allowed European countries to develop more sophisticated banking systems. But they also led to panics, inflation and dangerous speculation—sometimes all at once, as in France in 1720, when John Law’s disastrous Mississippi Company share scheme ended in mass bankruptcies for its investors and the collapse of the French livre.

As it turns out, it is easier to predict the consequences of a crisis than it is to prevent one from happening. In 2015, the U.K.’s Centre for Economic Policy Research published a paper on the effects of 100 financial crises in 20 Western countries over the past 150 years, down to the recession of 2007-09. They found two consistent outcomes. The first is that politics becomes more extreme and polarized following a crisis; the second is that countries become more ungovernable as violence, protests and populist revolts overshadow the rule of law.

With the U.S. stock market having suffered its worst December since the Great Depression of the 1930s, it is worth remembering that the only thing more frightening than a financial crisis can be its aftermath.

The Tradition of Telling All

From ancient Greece to modern Washington, political memoirs have been irresistible source of gossip about great leaders

ILLUSTRATION: THOMAS FUCHS

The tell-all memoir has been a feature of American politics ever since Raymond Moley, an ex-aide to Franklin Delano Roosevelt, published his excoriating book “After Seven Years” while FDR was still in office. What makes the Trump administration unusual is the speed at which such accounts are appearing—most recently, “Unhinged,” by Omarosa Manigault Newman, a former political aide to the president.

Spilling the beans on one’s boss may be disloyal, but it has a long pedigree. Alexander the Great is thought to have inspired the genre. His great run of military victories, beginning with the Battle of Chaeronea in 338 B.C., was so unprecedented that several of his generals felt the urge—unknown in Greek literature before then—to record their experiences for posterity.

Unfortunately, their accounts didn’t survive, save for the memoir of Ptolemy Soter, the founder of the Ptolemaic dynasty in Egypt, which exists in fragments. The great majority of Roman political memoirs have also disappeared—many by official suppression. Historians particularly regret the loss of the memoirs of Agrippina, the mother of Emperor Nero, who once boasted that she could bring down the entire imperial family with her revelations.

The Heian period (794-1185) in Japan produced four notable court memoirs, all by noblewomen. Dissatisfaction with their lot was a major factor behind these accounts—particularly for the anonymous author of ‘The Gossamer Years,” written around 974. The author was married to Fujiwara no Kane’ie, the regent for the Emperor Ichijo. Her exalted position at court masked a deeply unhappy private life; she was made miserable by her husband’s serial philandering, describing herself as “rich only in loneliness and sorrow.”

In Europe, the first modern political memoir was written by the Duc de Saint-Simon (1675-1755), a frustrated courtier at Versailles who took revenge on Louis XIV with his pen. Saint-Simon’s tales hilariously reveal the drama, gossip and intrigue that surrounded a king whose intellect, in his view, was “beneath mediocrity.”

But even Saint-Simon’s memoirs pale next to those of the Korean noblewoman Lady Hyegyeong (1735-1816), wife of Crown Prince Sado of the Joseon Dynasty. Her book, “Memoirs Written in Silence,” tells shocking tales of murder and madness at the heart of the Korean court. Sado, she writes, was a homicidal psychopath who went on a bloody killing spree that was only stopped by the intervention of his father King Yeongjo. Unwilling to see his son publicly executed, Yeongjo had the prince locked inside a rice chest and left to die. Understandably, Hyegyeong’s memoirs caused a huge sensation in Korea when they were first published in 1939, following the death of the last Emperor in 1926.

Fortunately, the Washington political memoir has been free of this kind of violence. Still, it isn’t just Roman emperors who have tried to silence uncomfortable voices. According to the historian Michael Beschloss, President John F. Kennedy had the White House household staff sign agreements to refrain from writing any memoirs. But eventually, of course, even Kennedy’s secrets came out. Perhaps every political leader should be given a plaque that reads: “Just remember, your underlings will have the last word.”

WSJ Historically Speaking: When Royal Love Affairs Go Wrong

From Cleopatra to Edward VIII, monarchs have followed their hearts—with disastrous results.

ILLUSTRATION: THOMAS FUCHS

“Ay me!” laments Lysander in Shakespeare’s “A Midsummer Night’s Dream.” “For aught that I could ever read, / Could ever hear by tale or history, / The course of true love never did run smooth.” What audience would disagree? Thwarted lovers are indeed the stuff of history and art—especially when the lovers are kings and queens.

But there were good reasons why the monarchs of old were not allowed to follow their hearts. Realpolitik and royal passion do not mix, as Cleopatra VII (69-30 B.C.), the anniversary of whose death falls on Aug. 12, found to her cost. Her theatrical seduction of and subsequent affair with Julius Caesar insulated Egypt from Roman imperial designs. But in 41 B.C., she let her heart rule her head and fell in love with Mark Antony, who was fighting Caesar’s adopted son Octavian for control of Rome.

Cleopatra’s demand that Antony divorce his wife Octavia—sister of Octavian—and marry her instead was a catastrophic misstep. It made Egypt the target of Octavian’s fury, and forced Cleopatra into fighting Rome on Antony’s behalf. The couple’s defeat at the sea battle of Actium in 31 B.C. didn’t only end in personal tragedy: the 300-year-old Ptolemaic dynasty was destroyed, and Egypt was reduced to a Roman province.

In Shakespeare’s play “Antony and Cleopatra,” Antony laments, “I am dying, Egypt, dying.” It is a reminder that, as Egypt’s queen, Cleopatra was the living embodiment of her country; their fates were intertwined. That is why royal marriages have usually been inseparable from international diplomacy.

In 1339, when Prince Pedro of Portugal fell in love with his wife’s Castilian lady-in-waiting, Inés de Castro, the problem wasn’t the affair per se but the opportunity it gave to neighboring Castile to meddle in Portuguese politics. In 1355, Pedro’s father, King Afonso IV, took the surest way of separating the couple—who by now had four children together—by having Inés murdered. Pedro responded by launching a bloody civil war against his father that left northern Portugal in ruins. The dozens of romantic operas and plays inspired by the tragic love story neglect to mention its political repercussions; for decades afterward, the Portuguese throne was weak and the country divided.

Perhaps no monarchy in history bears more scars from Cupid’s arrow than the British. From Edward II (1284-1327), whose poor choice of male lovers unleashed murder and mayhem on the country—he himself was allegedly killed with a red hot poker—to Henry VIII (1491-1547), who bullied and butchered his way through six wives and destroyed England’s Catholic way of life in the process, British rulers have been remarkable for their willingness to place personal happiness above public responsibility.

Edward VIII (1894 -1972) was a chip off the block, in the worst way. The moral climate of the 1930s couldn’t accept the King of England marrying a twice-divorced American. Declaring he would have Wallis Simpson or no one, Edward plunged the country into crisis by abdicating in 1936. With European monarchies falling on every side, Britain’s suddenly looked extremely vulnerable. The current Queen’s father, King George VI, quite literally saved it from collapse.

According to a popular saying, “Everything in the world is about sex except sex. Sex is about power.” That goes double when the lovers wear royal crowns.

WSJ Historically Speaking: The Perils of Cultural Purity

PHOTO: THOMAS FUCHS

“Cultural appropriation” is a leading contender for the most overused phrase of 2017. Originally employed by academics in postcolonial studies to describe the adoption of one culture’s creative expressions by another, the term has evolved to mean the theft or exploitation of an ethnic culture or history by persons of white European heritage. Continue reading…

WSJ Historically Speaking: On the Trail of Art Looters

A relief from Rome’s Arch of Titus showing the spoils of Jerusalem. PHOTO: DEAGOSTINI/GETTY IMAGES

Since 2014, Islamic State has been doing its best to destroy all traces of pre-Islamic culture in Iraq and Syria. Hammers and explosives aren’t its only tools. The antiquities trade is worth billions, and the self-styled caliphate is funding itself in part by looting and selling ancient treasures.

In late May, the Journal reported that U.S. and European Union authorities were scrutinizing a pair of art dealers as part of a wider investigation into who has been facilitating the market for ancient coins, statues and relics stolen by Islamic State. The dealers say they have done nothing wrong.

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