Extraordinary Popular Delusions

I’ve been reading Charles Mackay’s 1841/1852 book Memoirs of Extraordinary Popular Delusions and the Madness of Crowds (Noonday Press, 1932), on the recommendation of a friend. It chronicles, in entertaining, anecdotal fashion, a variety of popular crazes that took place throughout European history, including alchemy, animal magnetism, the Crusades, and witch hunting. (The Crusades had a real justification, but that is a topic for another time.) It is most admired by economists for its accounts of three famous economic “bubbles.” The first is the Mississippi Bubble that took place in France in 1719-1720, a consequence of out-of-control speculation on the French colony in Louisiana under policies orchestrated by John Law, Scottish economist and Controller General of Finances under the French regent, Philippe d’Orléans. The second is the South-Sea Bubble, which happened in Britain at almost the same time, also bursting in 1720. This was the result of speculation on the South Sea Company, which had been permitted by Parliament to take on the national debt. The third is the Dutch “Tulipomania,” a collective frenzy of investment in tulip bulbs that fell apart in 1636-37, and is known as the first recorded economic bubble.

Mackay writes:

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. (p. xix)

The book emphasizes the moral damage that accrues to a society that becomes obsessed with obtaining something for nothing: order breaks down, the low become puffed up while the high debase themselves, and crime and immorality become the order of the day. Robert Walpole fervently opposed the scheme of the South Sea directors to take on the debt:

He warned them, in eloquent and solemn language, of the evils that would ensue. [The bill] countenanced, he said, “the dangerous practice of stock-jobbing, and would divert the genius of the nation from trade and industry. It would hold out a dangerous lure to decoy the unwary to their ruin, by making them part with the earnings of their labour for a prospect of imaginary wealth. The great principle of the project was an evil of first-rate magnitude; it was to raise artificially the value of the stock, by exciting and keeping up a general infatuation, and by promising dividends out of funds which could never be adequate to the purpose.” In a prophetic spirit he added, that if the plan succeeded, the directors would become masters of the government, form a new and absolute aristocracy in the kingdom, and control the resolutions of the legislature. If it failed, which he was convinced it would, the result would bring general discontent and ruin upon the country. Such would be the delusion, that when the evil day came, as come it would, the people would start up, as from a dream, and ask themselves if these things could have been true…. (p. 50)

As for the “Tulipomania,” who can forget the story of the Englishman who inadvertently destroyed a precious tulip bulb?

This gentleman, an amateur botanist, happened to see a tulip-root lying in the conservatory of a wealthy Dutchman. Being ignorant of its quality, he took out his penknife, and peeled off its coats, with the view of making experiments upon it…Suddenly the owner pounced upon him, and, with fury in his eyes, asked him if he knew what he had been doing? “Peeling a most extraordinary onion,” replied the philosopher. “Hundert tausend duyvel!” said the Dutchman; “it’s an Admiral Van der Eyck.” “Thank you,” replied the traveller, taking out his note-book to make a memorandum of the same; “are these admirals common in your country?” “Death and the devil,” said the Dutchman, seizing the astonished man of science by the collar; “come before the syndic, and you shall see”….When brought into the presence of the magistrate, he learned, to his consternation, that the root upon which he had been experimentalizing was worth four thousand florins; and, notwithstanding all he could urge in extenuation, he was lodged in prison until he found securities for the payment of this sum. (p. 93)

According to Wikipedia, the Tulip Mania may not have been a true bubble and may not have been anywhere near the scale described by Mackay. Mackay’s notion of popular delusion creates its own bias towards exaggerating the madness of crowds. In any case, this book is at once droll entertainment and a salutary warning for our own time. Economic bubbles in themselves are a real enough threat, but we have many, many more layers of delusion that we’ll need to unpeel, like that tulip-root, before we can get to the root causes of the wreck that’s been made of our society.

Looking to America’s First Financier

In a time of ever more alarming reports on the financial condition of our country, Alexander Hamilton, who did more than any other to establish America’s financial system, is a useful figure to return to. I recently read a 1931 biography of Hamilton entitled Alexander Hamilton: First American Business Man. (1) The author, an economic historian at Cornell University named Thomas Irving Warshow, focused on what he regarded as essential about his subject: Hamilton’s role in the development of the business and financial systems of the United States.

In the existing biographies of Hamilton, there is but little emphasis on this portion of Hamilton’s activities, yet it was as financier and business man that our first Secretary of the Treasury proved his immortality. For as a man, he was not noble; as a politician, he was not an eminent success; as a statesman, apart from financial measures, he was not superior. But as a business man, not in all his period was any man to match him, nor in all the years of American history can any figure dwarf him in this, his natural field. (p. ix-x)

There is something dubious about Warshow’s characterization of Hamilton as a “businessman” rather than a statesman, but his narrative does have the virtue of keeping the focus on certain highlights of his career. It is impossible not to be riveted by Hamilton’s life story. The magnitude of his role in shaping our basic political and economic institutions is difficult to exaggerate. For all those Americans who have been taught to see the Founders as “immigrants,” Hamilton’s story serves as a corrective. Born out of wedlock in the British West Indies, he was derided as a “foreigner” by enemies like Jefferson. But this misses the larger point: our founding fathers were not immigrants to this nation; they created it. Hamilton rightly is ranked among the most important among them.

When Hamilton traveled to New York in 1772 to pursue an education, he had while still a teenager already served as general manager of the largest trading operation in the West Indies. He helped to win the Revolutionary War as Washington’s military secretary from 1777 to 1781. With his essays in the Federalist Papers and active campaigning, he secured the adoption of the Constitution. As Secretary of the Treasury he engineered the federal assumption of the states’ debts from the Revolutionary War and established the first United States Bank. He planned and organized the first large business corporation in America, the Society for Establishing Useful Manufactures (S.U.M.). He was a strong proponent of strengthening manufacture through protective tariffs, a policy argued for by Patrick Buchanan and at the Economic Nationalist site. He was an instrumental proponent of the “Federalist” philosophy whose conflict with “Jeffersonian Democracy” was basic to early American politics and continues to resonate today. Were it not for the public exposure of an amorous indiscretion and his capacity for making enemies, he might have been President. Instead, he squandered his life before he had reached 50 in a needless duel with Aaron Burr.

In his zeal to grow the economy, Hamilton was too tolerant of speculation and profiteering, and a number of scandals surrounded his tenure as Secretary. Yet he did not grow rich and does not seem to have ever used his political power for personal gain. He built up a financial system that provided the indispensable precondition for industrialization: sufficient access to credit. Warshow expresses “liberal” (in the 1931 sense of the word) reservations about Hamilton’s legacy, while seeing his contribution to American industrialization as beyond questioning:

In this entire plan Hamilton accepted the principle of exploitation. With the larger social effects of his program – the consequences to the working classes, congestion of population, the entire labor problem – he did not concern himself. Political fallacy though it was, it was not in harmony with his temperament or his principles [to so concern himself]. Material splendor and power were his vision and his plan. With the singleness of purpose so necessary to the successful large man of business he blazed the path to our present-day material prosperity. Without Hamilton we might be a happier people, but not the great commercial nation. Woodrow Wilson has said of America’s first business leader: “A very great man, but not a great American.” Deficient in liberalism, indeed; but then, what great debt does industrialism owe to the leaders of liberalism? (p. 179)

Russell Kirk, while describing Hamilton’s conservative vision of a virtuous, if privileged, aristocratic class running the helm of society, makes trenchant criticisms of his industrialist and nationalist views that are somewhat germane to Warshow’s.

[H]e ignored the probability that the industrialized nation he projected might conjure up not only conservative industrialists, but also radical factory-hands – the latter infinitely more numerous, and more inimical to Hamilton’s old-fashioned idea of class and order than all the agrarians out of Jefferson’s Virginia.” (2) Kirk feels that the trends towards industrialization and centralized government would have proceeded without Hamilton’s almost fanatic encouragement, and quite possibly in a healthier manner that could have prevented the rupture of the Civil War.

Nevertheless, from the present-day perspective, Hamilton’s thinking holds plenty of value to conservatives. Many of his intuitively held positions could be tools of salvation if adopted by our present-day business and political leaders. Hamilton held that the integrity of a nation rested on its credit, and his achievement was to make United States into a nation that could be relied on to pay off its debts. His establishment of the national credit appears to have been largely squandered by the current custodians of his legacy, but it is never too late to return to common sense on these matters. We are the inheritors of Hamilton’s practicality as well as of Jefferson’s idealism, and in the end we will get done what needs to get done.

Notes

(1) Robert Irving Warshow, Alexander Hamilton: America’s First Business Man, Garden City, NY: Garden City Publishing, 1931.

(2) Russell Kirk, The Conservative Mind From Burke to Eliot (Seventh Revised Edition), Chicago: Regnery Books, 1986.

The Worship of the Dollar

This blog, mainly concerned with cultural matters, has had little to say about the current financial crisis. I do feel, though, that it is the responsibility of all of us to learn what we can about investing, so we can protect ourselves and our families as much as possible. I therefore appreciate the efforts made by writers like Rick Darby and Ol’ Remus to grapple with the topic from their traditionalist perspective – not to mention The Economic Nationalist, whose blog has been added to the Links section. 

Mr. Darby has mentioned the book Bad Money by Kevin Phillips (2008) as a decent introduction to the subject. Phillips, a former Republican strategist, has evolved into a left-liberal who thinks the U.S. needs to work harder to be liked by its adversaries and that “radical Christianity” presents a grave danger to our national well-being, opinions which don’t incline me to trust his views about much else. In particular, I can’t take any analysis seriously that doesn’t take mass immigration into the picture. However, Phillips does seem to be one of the earlier people to point out the problem of the “financialization” of our economy. This is a useful concept, because it expresses something ordinary Americans understand but that has been obscured in the mind of “conservatives” for the last few decades: that having a strong “economy” ultimately means producing things of value. Finance is important, but only insofar as it facilitates real, productive activity. 

[The term] Bad Money … is not intended to evoke nineteenth-century robber barons, twentieth-century salad oil swindlers, or twenty-first-century Enron architects. For now, that is too parochial. The reason for applying a negative characterization is historical and institutional, with a deep bow to the inherent vulnerability of human nature exposed to pecuniary temptation, witnessed today on an unprecedented scale. Money is “bad,” in the historical sense, when a leading world economic power passing its zenith – before the United States, think Hapsburg Spain, the maritime Dutch Republic, (when New York was Amsterdam), and imperial Britain just before World War I – lets itself luxuriate in finance at the expense of harvesting, manufacturing, or transporting things. Doing so has marked each nation’s global decline. To institutionalize the dominance of minimally regulated finance at this stage of U.S. history is a bad idea. (p. 20) 

For decades, ordinary Americans in places like Michigan have agonized over the loss of the manufacturing jobs that provided a livelihood to so many families. They did more than that: they delivered quality products made by Americans TO Americans. During these decades, it was more often than not the liberals who called for protection of American jobs, while the “conservatives,” scoffing at this, assured us that our “economy” was fine.

I confess to having bought into this mindset in my libertarian days. Wasn’t American greatness rooted in American capitalism? Well, yes, partially. A system of free enterprise enables men of vision, motivated by profit, to create world-changing technologies. But when profit becomes an end in itself, we are in trouble. 

Consider housing, one of the current trouble spots in our economy. In the last decade I have lived in and shopped for apartments, condos, and houses. But nobody builds nice houses anymore. Apartments are little more than boxes for people to live in. When you move in they all have identical white walls and beige carpets. When you start making more money you can move into a nicer place with some trees or a pond outside; with more closet space; with another bath. Buy a condo and you get wooden floors, nice tiles, an actual garden of your own. And so forth…but there are no nice houses! All you are paying for are features, each feature carefully priced by corporate formulas, including the “intangibles” like the quality of your neighbors. The more you pay, the more features you get. But there is no house. One thing rarely noted in all the discussion of the housing bubble is how ugly all the new houses are. Is this coincidental? Of course not. 

Consider the various ways life has become less convenient in recent years. Food and fuel prices rising. Airports crowded and unpleasant. Banks charging whatever arbitrary fees they can get away with. And we citizens become numb to being gently abused by our government and business, who continue to claim that things are getting better and better. 

The real source of the problem is spiritual. And the gap between business leaders and ordinary people mirrors the gap between our politicians and ordinary people: both pursue abstracted, “rational” goals which are unconnected to any sense of the real people they are supposed to be serving. They are greedy, yes, and they are wicked; but it is not ordinary greed. Rather, in their liberal worldview, they are helping other people.

Just not their own countrymen.

A few weeks ago, one of my readers mentioned Edwin Arlington Robinson as a favorite poet. He has a wonderful poem dealing with the worship of the Dollar. Things have changed profoundly since 1916, when the poem was written (for one thing, the dollar coins he alludes to were made of gold!), but the spiritual emptiness he perceived then was the same as that which afflicts us today. 

                       CASSANDRA

     I HEARD one who said: “Verily,
     What word have I for children here?
     Your Dollar is your only Word,
     The wrath of it your only fear.

     “You build it altars tall enough
     To make you see, but you are blind;
     You cannot leave it long enough
     To look before you or behind.

     “When Reason beckons you to pause,
     You laugh and say that you know best;
     But what it is you know, you keep
     As dark as ingots in a chest.

     “You laugh and answer, ‘We are young;
     O leave us now, and let us grow.’—
     Not asking how much more of this
     Will Time endure or Fate bestow.

     “Because a few complacent years
     Have made your peril of your pride,
     Think you that you are to go on
     Forever pampered and untried?

     “What lost eclipse of history,
     What bivouac of the marching stars,
     Has given the sign for you to see
     Millenniums and last great wars?

     “What unrecorded overthrow
     Of all the world has ever known,
     Or ever been, has made itself
     So plain to you, and you alone?

     “Your Dollar, Dove and Eagle make
     A Trinity that even you
     Rate higher than you rate yourselves;
     It pays, it flatters, and it’s new.

     “And though your very flesh and blood
     Be what your Eagle eats and drinks,
     You’ll praise him for the best of birds,
     Not knowing what the Eagle thinks.

     “The power is yours, but not the sight;
     You see not upon what you tread;
     You have the ages for your guide,
     But not the wisdom to be led.

     “Think you to tread forever down
     The merciless old verities?
     And are you never to have eyes
     To see the world for what it is?

     “Are you to pay for what you have
     With all you are?”— No other word
     We caught, but with a laughing crowd 
     Moved on. None heeded, and few heard.