Today’s evil combination of ambitious busybodies and governments have become unusually intrusive.
The financial side of history goes away back, as does the record of great names enjoying fortune, and often sudden misfortune. In covering the interaction of financial violence and famous names, the path has been fascinating..
Occasionally, there has been someone with advanced understanding to provide a valid explanation. What’s more, there have been examples of financial booms and busts hitting some famous literary figures.
And, sadly, the formation of government is intended to be constructive but too often in avaricious hands it becomes a force for disorder and destruction. Only government can impose war and inflation.
Going back to Ancient Greece, Aristophanes in his play “The Frogs” outlined how inflation really worked.
Of course, it is only government that can depreciate the currency thereby creating inflation, which can become very distressful to the public. Compelled to inflate, the perpetrator needs to lay the blame elsewhere.
As inflation began to become uncomfortable in the early 1970s, interventionist economists crafted a distraction about whether it was “Cost-Push” or “Wage Pull”. Fortunately, economist Milton Friedman provided clarifying sunshine when he observed: “Inflation is always and everywhere a monetary phenomenon”.
Which, in real time, seemed like a breath of fresh air.
Historically. stocks arrived on the financial scene big time with the South Sea Bubble that climaxed in 1720. With this, the recurring pattern of financial violence now included stocks—to the up and then to the down.
The basic pattern recurs.
A major war funded through inflation and accompanied by soaring prices becomes widely distressful. The mania climaxes, which sets up quiet and relatively benign period, which by comparison feels good.
From 1866 to 1873 Americans enjoyed the post-war relief. Which in real time Mark Twain labeled as "The Gilded Age". But he suffered insolvency by unsuccessfully pouring his funds into developing a new typesetting machine. The 1873 Crash made his attempts hopeless.
With the failure of the 1825 Bubble, Sir Walter Scott (Waverly Novels) went broke funding an aggressive book publishing venture. Compounded by his compulsive building of his country home—Abbotsford.
In the 1929 boom, F. Scott Fitzgerald, who personified the "Roaring Twenties", made ready money by writing pedestrian short stories for popular magazines. But was unable to get an appropriate return from “The Great Gatsby”, the definitive novel on the Jazz Age, of which he was the epitome.
He was chronically short of money.
When Fitzgerald died in 1940, he considered himself a failure and his opus forgotten.
A devastating step occurs when fevered participants become exhausted speculating in a Great Bubble. the consequent Crash triggers a Great Depression. Prices for both financial and tangible assets decline, leaving individuals, business, and governments with the problem of dealing with debt burdens that ranged from excruciating to impossible.
It seems that one of the rare new things in finance has been the development of modern central banking with the Bank of England in 1694. This was preceded by a decade or so with the flourishing evolution of a public market for shares. The first stock market letter began publication in 1692.
All suggesting that modern finance had arrived.
Prior to this, the history of consumer prices in England shows two big inflations per century since the data began in 1264 AD. Each culminated with a mania and speculative collapse that set up a brief period of relative stability before the next secular contraction started. The transition typically was marked by a critical credit crisis a decade following the high in commodity-consumer prices.
During one of the inflation booms in the 1500s, John Shakespeare aggressively and successfully played the soaring real estate game. He was highly leveraged. And, when it naturally reversed, he couldn't meet his mortgage obligations and lost his status as a wealthy alderman. The boom that was making him rich crashed in 1551 bringing him down.
With this, his son, William, was unable to continue an expensive classical education, which may have influenced his style of playwriting. Eventually, with his own success, Will didn't speculate in property but invested in safe fixed income securities.
Sir Thomas Gresham was one of the great traders and is best known for rescuing British finances with the collapse of commodity speculation in 1551 and credit panic in the world's money market, Antwerp, in 1560. His instructions, which were essentially common sense, about the problems of servicing debt obligations from a weak into a chronically stronger senior currency were described 200 years later as "Gresham's Law" that bad money drives out good money.
The essential pattern started from a secular trough in prices that rose to a climax and, about a decade later, a credit crisis initiated a long contraction. A key date in the late 1600s was 1644 for the trough. The next commodity rise blew out in 1663 and the credit crisis of 1672 included the default by Charles II.
Following the trough of 1695 (which prevailing distress motivated the establishment of the Bank of England), commodities rose to 1711 with the first Great Bubble culminating in 1720.
It seems that the key items that define modern financial history are central banking as well as great popular inflations in financial assets or "new eras". That fail dramatically.
Over the period of this review, the overall observation is that businesses, governments, the public, academics as well as the famous have responded in similar ways to the same recurring market forces.
Ironically, today’s typical academic response to the distress consequent to a credit-inspired boom has been to prescribe more credit and/or currency inflation. Also, when great financial speculations collapsed, they introduced recriminatory "anti-bubble" legislation.
That’s compulsively slamming the barn door after the horses have bolted.
Sound business and credit practices were instrumental in getting out of medieval subsistence and into the incredible productivity achieved by the late 1800s. Those socio-economic traditions were sufficiently resolute to limit the always latent urge to experiment in currency as well as credit markets.
For reasons beyond explanation in this article, policymakers have been unrelenting in imposing credit inflation and consequent currency depreciation since the early 1900s, which has forced another Century of price inflation. The previous examples prevailed through the Sixteenth Century and Third Centuries.
In other articles, I’ve called them Tyrannical Centuries.
Medieval scholastics wasted their time debating the labor theory of value as well as "fair" wages and interest rates. Then in the late 1300s, the polymath Bishop Oresme explained volatility in credit and currencies much the same as we understand it today by Gresham's Law.
In the 1500s, academics were still going on about fair wages and controlled interest rates while Copernicus explained the fluctuations in currency and credit markets along the lines of Gresham or today's monetary conservatives.
Also in 1558, Europe’s biggest banking house published in one of its regular newsletters the observation that it was mainly governments that were gullible enough to finance alchemists.
Today’s evil combination of ambitious busybodies and governments have become unusually intrusive.
Exquisite irony.
Read next: Figures flip the field
Email Us | Reader Friendly | Comments
Bob Hoye (BobHoye.com) has been researching investments for decades, which eventually included the history of financial and political markets. He considers now to be the most fascinating time for both since the Great Reformation of the 1600s. Bob casts a caustic eye on all promotions and, having a degree in geophysics, is severely critical of the audacity that a committee can “manage” not just the economy, but also the temperature of the nearest planet. He has had articles published in major financial journals and, as a speaker, has amused assemblies in a number of cities, from London to Zurich to Tokyo.
