Historical Parallels

Excerpt from “Extraordinary Popular Delusions And The Madness Of Crowds” by Charles Mackay first published in 1841 (that’s right, about 170 years ago) and now available free from Project Gutenberg here.

In reading the history of nations, we find that, like individuals, they have their whims and their peculiarities; their seasons of excitement and recklessness, when they care not what they do. We find that whole communities suddenly fix their minds upon one object, and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly more captivating than the first. We see one nation suddenly seized, from its highest to its lowest members, with a fierce desire of military glory; another as suddenly becoming crazed upon a religious scruple, and neither of them recovering its senses until it has shed rivers of blood and sowed a harvest of groans and tears, to be reaped by its posterity. At an early age in the annals of Europe its population lost their wits about the Sepulchre of Jesus, and crowded in frenzied multitudes to the Holy Land: another age went mad for fear of the Devil, and offered up hundreds of thousands of victims to the delusion of witchcraft. At another time, the many became crazed on the subject of the Philosopher’s Stone, and committed follies till then unheard of in the pursuit. It was once thought a venial offence in very many countries of Europe to destroy an enemy by slow poison. Persons who would have revolted at the idea of stabbing a man to the heart, drugged his pottage without scruple. Ladies of gentle birth and manners caught the contagion of murder, until poisoning, under their auspices, became quite fashionable. Some delusions, though notorious to all the world, have subsisted for ages, flourishing as widely among civilized and polished nations as among the early barbarians with whom they originated,—that of duelling, for instance, and the belief in omens and divination of the future, which seem to defy the progress of knowledge to eradicate entirely from the popular mind. Money, again, has often been a cause of the delusion of multitudes. Sober nations have all at once become desperate gamblers, and risked almost their existence upon the turn of a piece of paper. To trace the history of the most prominent of these delusions is the object of the present pages. Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.

In the present state of civilization, society has often shown itself very prone to run a career of folly from the last-mentioned cases. This infatuation has seized upon whole nations in a most extraordinary manner. France, with her Mississippi madness, set the first great example, and was very soon imitated by England with her South Sea Bubble. At an earlier period, Holland made herself still more ridiculous in the eyes of the world, by the frenzy which came over her people for the love of Tulips. Melancholy as all these delusions were in their ultimate results, their history is most amusing. A more ludicrous and yet painful spectacle, than that which Holland presented in the years 1635 and 1636, or France in 1719 and 1720, can hardly be imagined. Taking them in the order of their importance, we shall commence our history with John Law and the famous Mississippi scheme of the years above mentioned.

[…]

The Regent [of France] appears to have been utterly astonished at his [John Law’s] success [for introducing an apparently viable monetary system based on paper money], and gradually to have conceived the idea, that paper, which could so aid a metallic currency, could entirely supersede it. Upon this fundamental error he afterwards acted.

[…]

As soon as the bank, from a private, became a public institution, [John Law was initially allowed to operate the bank privately but on behalf of the state – as Law’s endeavor proved successful, the politicians took over the operation] the Regent caused a fabrication of notes to the amount of one thousand millions of livres. This was the first departure from sound principles…

[…]

Law found that he lived under a despotic government, but he was not yet aware of the pernicious influence which such a government could exercise upon so delicate a framework as that of credit. He discovered it afterwards to his cost, but in the mean time suffered himself to be impelled by the Regent into courses which his own reason must have disapproved. With a weakness most culpable, he lent his aid in inundating the country with paper money, which, based upon no solid foundation, was sure to fall, sooner or later. The extraordinary present fortune dazzled his eyes, and prevented him from seeing the evil day that would burst over his head, when once, from any cause or other, the alarm was sounded.

The rest is of course, history.

It is worth noting here that it is the Chinese who first experimented with paper money over 500 years before John Law came around. The result was always the same.

What is also worth mentioning here is that paper money could in fact be used successfully. It is the inherent nature of politics and, in particular, the perceived “raison d’etat” that will always and everywhere subvert and poison the utility of a paper monetary system. In the particular case of a society adopting a system based on electoral politics (euphemistically called “democracy”), a paper based fiat monetary system will always be the preferred choice exactly because of the delusions it engenders in the population at every social level.

When people of influence understand the dynamics of paper money and, due to their influence, can bribe the political class into imposing it upon society, a transfer of wealth of epic proportions begins albeit gradually though inexorably.

It’s the monetary system stupid!

The Regent, who knew nothing whatever of the philosophy of finance, thought that a system which had produced such good effects could never be carried to excess. If five hundred millions of paper had been of such advantage, five hundred millions additional would be of still greater advantage. This was the grand error of the Regent, and which Law did not attempt to dispel. The extraordinary avidity of the people kept up the delusion; and the higher the price of Indian and Mississippi stock, the more billets de banque were issued to keep pace with it.

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6 Responses to “Historical Parallels”

  1. josephbc69 Says:

    I too had a response typed out and very nearly finished, when one of my fingers [I only use two to type] accidentally grazed a key and it was sent, or so I thought, but it seems to have disappeared into the Internet ether….

    At any rate, as masterful as that reply was, it is now a lost history, but I’ll recreate it as best I can. What I did was re-read yr reply, and then go down its points with a brief answer or addition. So, here I go again!

    Firstly, you are absolutely correct in writing that “In light of the fact that a Debt Based Fiat Monetary system and Fractional Reserve Banking have been arbitrarily and unilaterally chosen and imposed upon society then, clearly, the intention cannot be to foster a contraction of the credit market.” I know full well these creeps [my term for the most criminal degenerates in humankind] are not out to help anyone except themselves. They are exactly as the recent tag puts it, ‘financial vampires,’ living as parasites upon the body of the society unfortunate enough to have allowed them entry. In truth, they create nothing of value and are incapable of making a positive contribution in any way useful to their host’s body politic.

    I would recast Brendan Behan’s arguably most famous quotation as this: “There is no human situation which the presence of a banker cannot make worse.” F D Roosevelt rightly saw them for what they were and what they had done when he derided them in his famous coinage as ‘banksters,’ a word rooted in the notorious gangsters of FDR’s Depression era. We live today in the agony of the 2nd Great Depression –Doug Casey calls it the ‘Greater Depression’– but this time it is all-too-clear that the banksters deliberately created the conditions through which it came to be.

    And here we arrive at the heart of the matter, for, as you wrote, “Paper money is not necessarily evil. But Fractional Reserve Banking AND Paper Money [sic] together are as nasty a combination for those on the receiving end of the ramifications of this arrangements as it is a fantastic scheme for the perpetrators.” ‘Ain’t that the truth!’ as my Sicilian mother often remarked in her Chicago dialect.

    Now we both agree that paper currency is only as good as ‘the full faith and credit’ of the government which issues it. But, how soon we forget that currency and the very best bonds are all-too-often made worthless by a change of government, and thus, the faith of the polity that bears the true costs of them. During the first Great Depression, Venezuela’s government sold bonds backed by its immense oil reserves to US buyers and, for a while, all went well.
    In the next election however, the worsening Depression caused voters to put into office the Opposition, whose first act upon taking office was to repudiate those bonds, which were once touted to be ‘as good as gold’. Well, as Vonnegut told us, “So it goes.”

    We need to return to the true Constitutional roots of government issued currencies. Both gold and silver [G&S] as a resource currency do have a place in the overall spectrum of currencies, but they are unable to be the full scope needed for several reasons, the primary one being that not enough of them exists in circulation or the near-future to completely satisfy demand. The second is that history shows us they are inevitably debased whenever a government gets into trouble it cannot resolve to the satisfaction of the governed. See ‘Venezuela’s government bonds’ above.

    Finally, I must point out that when he was an investment banker Stephen Zarlenga recommended gold when it was trading at about US$ 265.00, in those halcyon days of yore!

    In 2000 I had Lela, my oldest daughter, buy ten gold Maple Leafs, at $330.00. She sold them six months later for a 10% increase in US$, but never told me she had. Ten years later she asked me to loan/gift her C$ 5,000.00, and I told her this was the time to sell some of those coins, as G had risen to US$ 1350. An immense silence followed, then she said she couldn’t do that. “But that’s why you bought them, was for such an emergency!” I said, and I then learned they were gone –all ten of them! She’s never replaced them since, as she cannot afford to at current prices.

    I’m nearly 70, and have seen the prices for G&S rise and fall, rise and fall. It is the rhythm of the Kosmos, the systole and diastole of our economic and social lives, and will continue until our sun goes nova and the Kosmos reclaims our planet for a rebirth, when all our glories and madness will have long ceased. I was very fond of astronomy when I was a child, and early on learned to take a long, long look at the nature of any problem and thus, its place in the context of human history. If half the people now living had the same perspective, all our insane wars and demeaning wealth-seeking would cease, to be replaced by more humane values and goals.

    Until then, you and I are passengers in a lifeboat just floated from planet Earth, the vessel that birthed us all. We are so intimately linked to her that we cannot –and must not, ever– believe we are fully independent of her and no longer need the umbilical cords that sustain us. Our true Original Sin is our declaration that we are free, non-determinant beings: Paradise is an embarrassing myth best left behind as we embrace science and its supporting materialism.

    Well, I’ve wandered afar from the path we set upon, but perhaps in one way I’ve returned to where you and I began:

    “We find that whole communities suddenly fix their minds upon one object, and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly more captivating than the first.”

    Today our eyes and hearts are fixed upon economics as salvation, because we forgot that essence precedes existence, that the spirit must inform us before we act to change the world and ourselves to fit the new paradigm. So we will drift from one false prophet to another, without profiting what most needs acting upon: our outlook, informed by our hearts. “For what does it profit a man if he gains the world, but loses his soul?”

    G&S are no more a better god than Mammon or paper currency: what matters most is an informed heart, one that cannot go to war in foreign lands to take another people’s resources, nor withhold the funds a farmer needs to feed his people. This then is our core crisis: our hands are not informed by our heart, but only by our heads, and when the head-heart-hand trinity is broken, all our works are doomed to self-feat.

  2. pat00donnelly Says:

    English agent, John Law destroyed France, but he did his job too well! Napoleon was the consequence and the slave owners who ruled England had to scramble all resources to face him.

    • josephbc69 Says:

      Napoleon was ‘an unintended consequence’ in this; as France was already badly decayed internally, its ancien régime was doomed to collapse. In reasoning we often find people attribute to events a causal relation that is not sustained by the facts.

      I’m also writing this because of the confusion of terms: firstly, ‘money’ is not ‘currency’, but a currency may stand for money in a monetary system. It’s the same relationship as ‘number’ is a concept and ‘numeral’ is its sign, that we use in math.

      Next, the fable that a paper currency is always predestined to fail is one of those “simply won’t die of natural causes” so beloved by gold bugs and hard money advocates. The reality is that a currency is always and only as good as the full faith in its issuing governance by its people, period.

      When people cease to believe in the creditworthiness of the issuing government, then that faith-token will be decimated by the money-changers, and we get inflation, which is NOT an increase in the supply of paper tokens but a real DECLINE in purchasing power [i.e., loss of faith]. The printing of more tokens FOLLOWS the collapse of faith. It cannot do otherwise.

      The inverse is also true: during a Depression brought on by an insufficient supply of paper tokens, the people still require food, goods, and services, so the VALUE attributed to the tokens will increase, i.e., a quart of milk or pint of beer is then $.05. This is what happened in the USofA after the stock market fell in 1929. Ben Bernanke may be a student of that era, but he demonstrated he hadn’t learned the lesson when he issued more tokens [the correct response] but then gave them to the banksters [his fatal error] who were the perps of the greatest financial crimes in history!

      • guidoamm Says:

        “…a currency is always and only as good as the full faith in its issuing governance by its people, period.”

        Agreed. There is nonetheless, an arithmetical limit to faith.

        You may have faith in the ideas and the character of a people but circulating ever increasing quantities of currency with no restraint will arithmetically doom you regardless of your intentions.

        • josephbc69 Says:

          Good morning, Guido!

          Perhaps you’ll agree that the amount of currency issued was more than enough to relieve the usurious debt loaded upon the lower 99% by the 1%? One analyst showed that if the Obamamama had laid SOME of those bits of paper on the mountain of bad mortgages, many of the worst consequences could have been avoided, at far less an ultimate cost of destroying what security the lower 99% had left.

          However, instead of directing 90% of it to those in need, it went to the banksters and others who created the problems, and that is what was the fatal flaw in Bernanke’s approach.

          Hell, very little of it ever went to the non-criminal banks outside of Wall Street, community and state banks that committed no major crimes and truly needed those funds!

          When crime is rewarded the perps simply laugh and become scofflaws of the worst kind, as it all was created by electronic wizardry of bank debt.

          At any rate, my father [born 1905] was the first to tell me [he was taken out of his school’s 6th grade to tend sheep on our family’s farm in Raiano, near L’Aquila] about liquidity and the velocity of currency during the Great Depression, which as a young single male he found mostly enjoyable. As he put it, the farms and factories were still there, and ppeople were willing to go to work, but so much cash was being hoarded that there was inadequate liquidity and velocity, which he termed ‘rate of turnover’.

          Today we find ourselves halfway –at best– through our Great Depression. Bernanke understands that if the 98% do not have enough currency in their hands, then first the economy slows, then the society, until both are sucked into a negative descent of self-reinforced decline in activity.

          So my comments regarding the perceived value of currency simply means that it is entirely dependent upon the psychological, emotional, and spiritual states we humans find ourselves in.

          When you read Stephen Zarlenga’s magisterial ‘The Lost Science of Money’ 2nd edition, you will learn from history how gold and silver [G&S] were NOT the immutable storehouses of value that all-too-many believe them to be. The most trusted and never diluted currency were the humble Roman iron coins used from classical Rome until the fall of Byzantium in 1453, an unparalleled achievement for any currency.

          The myth of G&S as immutable storehouses of value was created to first facilitate deposit banking, then fractional deposit banking, which led to the true destroyer of currency, private central banks, the creation of Rothschild and the other seven or eight big banks that wanted such a monster. And paper currency by itself does NOT necessarily lead to hyperinflation, another lie put out by private central banks.

          Stephen clearly shows how the classic case of hyperinflation in the Weimar Republic after WW1 came about AFTER the State Bank was deliberately privatised by outside banking pressures. Ain’t history hrand?

          All best, and many thanks for allowing us to carry on our discussion. Perhaps we can co-author a simple booklet that may yet save the world, at least as we know it! Neither of my Poms are worried as to what the prime rate is at this time.

          • guidoamm Says:

            I had a response typed out and sent, or so I thought but it seems to have disappeared.

            Your argument that the “amount of currency issued was more than enough to relieve the usurious debt loaded upon the lower 99% […] instead of directing 90% of it to those in need, it went to the banksters and others who created the problems” can only hold if your assumption is that the intention was to solve the problem brought on by the debt crisis. In light of the fact that a Debt Based Fiat Monetary system and Fractional Reserve Banking have been arbitrarily and unilaterally chosen and imposed upon society then, clearly, the intention cannot be to foster a contraction of the credit market. Fractional Reserve Banking cannot contemplate a contraction of credit or the system blows up.

            We agree therefore that, moral considerations aside, giving money to those in debt would have been a far more effective way to go about righting the social and economic ship.

            I am not familiar with Zarlenga’s work but what I can say is that everything has a time and a place. Gold may not always be a desirable investment. In my opinion however, post 9/11 gold re-gained a place of prominence not only in investment but simply in the protection of one’s purchasing power. Paper money is not necessarily evil. But Fractional Reserve Banking AND Paper Money together are as nasty a combination for those on the receiving end of the ramifications of this arrangements as it is a fantastic scheme for the perpetrators.

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