Historically Speaking: The High Cost of Financial Panics

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

The Wall Street Journal, January 17, 2019

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.

Historically Speaking: The Tradition of Telling All

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

The Wall Street Journal, November 30, 2018

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: A History of the Unloved Electoral College

Opponents have ranged from John Adams to Richard Nixon. Why has the system survived?

PHOTO: THOMAS FUCHS

The 2016 election results caused plenty of bitterness—not the least of which had to do with the Electoral College. Donald Trump won the presidency a year ago this week but lost the popular vote—something that has happened a handful of times in the republic’s history and twice in the past two decades. In a December press conference, President Barack Obama declared the system to be past its sell-by date: “It’s a carry-over from an earlier vision of how our federal government was going to work.”

What were the Founding Fathers thinking? At the 1787 Constitutional Convention, they created a unique system for choosing the president. Each state got a number of electors based on the total of its U.S. senators (two) and U.S. representatives (as set by census). Each state legislature could decide the method of picking electors, but if the electors’ vote was inconclusive, the choice would be sent to the House of Representatives. “The original idea,” wrote Federal Election Commission official William C. Kimberling in 1992, “was for the most knowledgeable and informed individuals from each State to select the president based solely on merit and without regard to State of origin or political party.” Continue reading…

WSJ Historically Speaking: A Brief History of Protest in Sports

From angry gladiators to Suffragette sabotage

ILLUSTRATION: THOMAS FUCHS

Sports and protest often go together: As soon as someone makes a call, somebody else is disputing it. But in recent weeks, the really big clashes have happened off the playing fields, as President Donald Trump and others criticized football players kneeling during the national anthem. Such mixing of sports, politics and protest has ancient roots—on the part of both spectators and players.

An early protest by a player comes down to us in “Lives of the Twelve Caesars” by the Roman historian Suetonius (69-130 A.D.). An unnamed gladiator once refused to fight in front of the Emperor Caligula. Then, the gladiator, seeing he would die anyway, grabbed his trident and killed his would-be victors.

Continue reading…