William Rees-Mogg: No theory can stop recurrent boom and bust
[William Rees-Mogg was Deputy Editor of The Sunday Times before becoming Editor of The Times in 1967, a position he held until 1981.]
Since the 19th century, economists have sought to stabilise the trade cycle and prices at the same time, but without success.
In 1847, a Dr Hyde Clark wrote a paper entitled Physical Economy - a Preliminary Inquiry into the Physical Laws Governing the Periods of Famines and Panics. His paper was published in the Railway Register.
It opens with the comment: “We have just gone through a time of busy industry and are come upon sorrow and ill-fortune; but the same things have befallen us often within the knowledge of those now living...a period of bustle, or of gambling, cut short in a trice and turned into a period of suffering and loss, is a phenomenon so often recorded, that what is most to be noted is that it should excite any wonder.” We can say that again in 2008.
The 1840s were the period of the great railway mania and of Sir Robert Peel's Bank Act. They were one of the periods in which economists were concerned to explain economic crises and, if possible, prevent them recurring. We are back in such a period and should expect a similar public debate. Within a few days, the 2008 crisis has overwhelmed leading banks in the United States and Britain; the US Administration has had to pledge unimaginably large sums in defence of the surviving banks. The US Government has taken on contingent liabilities of more than $1 trillion.
At least Dr Hyde Clark enables us to put this crisis in ahistoric context. There had been crises before the 1840s, including such spectacular events as the collapse of the Dutch tulip mania in the 1630s. There have been crises since the 19th century, including the Great Wall Street Crash of 1929. We are not dealing with a unique phenomenon now, but with a recurrent event that the world economy has always survived in the end.
In 1847 Samuel Jones Loyd, a London banker who became Lord Overstone, wrote his classic description of the natural lifecycle of trade. “We found the state of trade subject to various conditions which are periodically returning; it revolves apparently in an established cycle. But first we find it in a state of quiescence, - next improvement, - growing confidence, - prosperity, - excitement, - overtrading, - convulsion, - pressure, - stagnation, - distress, - ending again in quiescence.”
We can take it that our present stage is one of “convulsion”, and that we may be moving on through pressure towards stagnation and distress. Anything that could be called recovery may be some way away.
A number of economists have tried to construct new theories that would stabilise the trade cycle and at the same time stabilise prices. This has engaged the attention of economists of the standing of David Ricardo, W.S. Jevons and Maynard Keynes, of the English school, and of the American, Irving Fisher. There was also a brilliant contribution from Ludwig von Mises, of the Austrian school, who came to the conclusion that this task might be impossible. That will not stop people trying again and again...
Read entire article at Times (UK)
Since the 19th century, economists have sought to stabilise the trade cycle and prices at the same time, but without success.
In 1847, a Dr Hyde Clark wrote a paper entitled Physical Economy - a Preliminary Inquiry into the Physical Laws Governing the Periods of Famines and Panics. His paper was published in the Railway Register.
It opens with the comment: “We have just gone through a time of busy industry and are come upon sorrow and ill-fortune; but the same things have befallen us often within the knowledge of those now living...a period of bustle, or of gambling, cut short in a trice and turned into a period of suffering and loss, is a phenomenon so often recorded, that what is most to be noted is that it should excite any wonder.” We can say that again in 2008.
The 1840s were the period of the great railway mania and of Sir Robert Peel's Bank Act. They were one of the periods in which economists were concerned to explain economic crises and, if possible, prevent them recurring. We are back in such a period and should expect a similar public debate. Within a few days, the 2008 crisis has overwhelmed leading banks in the United States and Britain; the US Administration has had to pledge unimaginably large sums in defence of the surviving banks. The US Government has taken on contingent liabilities of more than $1 trillion.
At least Dr Hyde Clark enables us to put this crisis in ahistoric context. There had been crises before the 1840s, including such spectacular events as the collapse of the Dutch tulip mania in the 1630s. There have been crises since the 19th century, including the Great Wall Street Crash of 1929. We are not dealing with a unique phenomenon now, but with a recurrent event that the world economy has always survived in the end.
In 1847 Samuel Jones Loyd, a London banker who became Lord Overstone, wrote his classic description of the natural lifecycle of trade. “We found the state of trade subject to various conditions which are periodically returning; it revolves apparently in an established cycle. But first we find it in a state of quiescence, - next improvement, - growing confidence, - prosperity, - excitement, - overtrading, - convulsion, - pressure, - stagnation, - distress, - ending again in quiescence.”
We can take it that our present stage is one of “convulsion”, and that we may be moving on through pressure towards stagnation and distress. Anything that could be called recovery may be some way away.
A number of economists have tried to construct new theories that would stabilise the trade cycle and at the same time stabilise prices. This has engaged the attention of economists of the standing of David Ricardo, W.S. Jevons and Maynard Keynes, of the English school, and of the American, Irving Fisher. There was also a brilliant contribution from Ludwig von Mises, of the Austrian school, who came to the conclusion that this task might be impossible. That will not stop people trying again and again...