History –It’s all been done before

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Observerofu
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One famous saying “Those that forget History is doomed to repeat it” is actually a misquote from Poet and Philosopher George Santayana said “Those who cannot remember the past are condemned to repeat it” but either version get’s the point across.

The problem with History is that it is really not taught for the significance that it deserves. Most History books are sanitized or only a version of it is taught. It depends on who wrote the book as to whose version of history you get.

Texas is a good example of this fight between ideologies. One side wanted their version of History taught while the other side wanted theirs. What happened to just creating School Books that teach the real actual version of History with warts and all?We don’t need a”version” of History. Let the real facts out and just teach that. One such fact is the information that this Economic situation is not new.

Part two of this essay series explores briefly how ideology affects a person’s economic view and historical perspective.

Part one explored the Economics of a Pencil and how Government just doesn’t understand how our Economy really works. The pencil represented the production cycle of our Industrial base. They represent the ties that bind our economy to each and every item that is made in America. Every product we lose to another Country unravels that thread a little more until we reach a point where the American Economy comes apart.

Part two will start where it all began. No not President Bush, or even Presidents Clinton or President Carter, but way back to the early 1900’s with Woodrow Wilson. Arguably one of the most evil Presidents we have ever had.

This story was written in the Progressive era where “Big Government” was born. President Woodrow Wilson enamored with Europe’s model American Progressives thought that the natural right principles of the Constitution represented the greatest obstacle to political “progress” and “evolution.” In place of the Constitution they proposed an “administrative” or “central” state whose unending purpose would continually strive for evolutionary “progress” and whose powers would be therefore unlimited. He was the first President who was openly critical of the Constitution. He too felt it was a charter of negative liberties. He even once referred to the Constitution as “political witchcraft”.

President Wilson wrote in 1908 “Government is not a machine, but a living thing. It falls, not under the theory of the universe, but under the theory of organic life. It is accountable to Darwin.” Insisting that the Constitution does not contain any theories or principles, Wilson argued that the Constitution has a “natural evolution” and is “one thing in one age, another in another.” “Living political constitutions,” he wrote, “must be Darwinian in structure and in practice.”

This is where it began. The birth of Big Government and the nanny state. It is also the birth of the Federal Reserve System. The Federal Reserve System was the most powerful institution in the new order, however that same Government model of efficiency caused the Great Depression when the new enlightened Wilson era men made a series of cumulative mistakes that contracted the money supply by one-third and wiped out purchasing power in an unprecedented fashion. But we will discuss this in part three of this essay series

Now to the 1920-21 Forgotten Depression.

This is where History gets interesting and forgotten.

The “Great Depression” was called “Great” only here in America simply because in other Countries the “Depression” did not last as long as it did here. It is interesting to study the contrast between the economic situations in 1920 vs. the same circumstances in 1929.

The economic outlook in 1920 was grim indeed. Unemployment had risen from 4% to 12 % almost overnight. GDP dropped 17%. Then Secretary Herbert Hoover wanted President Harding to intervene and create a “stimulus” program and pour money into infrastructure (shovel ready) jobs.

Hoover was ignored.

Instead of “fiscal stimulus” President Harding cut Government spending by almost 50%, cut tax rates for EVERYONE and cut business taxes by nearly half. The Federal Reserve that Woodrow Wilson created was hardly even considered. As one economic historian puts it, “Despite the severity of the contraction, the Fed did not move to use its powers to turn the money supply around and fight the contraction.”

By 1921 just ONE YEAR later the economy was already showing signs of recovery. The following year, unemployment was back down to 6.7 percent and it was only 2.4 percent by 1923.

The “Roaring Twenties” was off and running.

Japan’s lost decade.

During the same time period Japan also suffered a major economic downturn. But instead of loosening economic restrictions they tightened them. The Big Banks, Big Industry and the Government all got together and literally destroyed their free market. They artificially held their market commodities up and pumped money into stimulus programs and “infrastructure” ready programs. During these years Japan’s industrial stagnation not only continued but worsened to a point in 1927 those same “Big Banks” actually started failing with “Big Business”

The United States, by contrast, allowed its economy to readjust. “In 1920–21,” writes Anderson,

“we took our losses, we readjusted our financial structure, we endured our depression, and in August 1921 we started up again.… The rally in business production and employment that started in August 1921 was soundly based on a drastic cleaning up of credit weakness, a drastic reduction in the costs of production, and on the free play of private enterprise. It was not based on governmental policy designed to make business good.”

The federal government did not do what Keynesian economists ever since have urged it to do: run unbalanced budgets and prime the pump through increased expenditures. Rather, there prevailed the old-fashioned view that government should keep taxation and spending low and reduce the public debt.

In review.

The very definition of Insanity is doing the same thing over and over and expecting different results.

History is there for us to learn from it. Our economic situation is not new. It has happened before. The difference is people think history begins at their birth. They believe that they can create a new outcome from a set of circumstances that has occurred over and over. We see that in today’s Government. Each Party is trying to tell us they have something bright, shiny and new that will fix the malaise we are in.

They have nothing new. The spending, the stimulus, the “shovel ready” jobs, infrastructure spending, blending of Government and Industry have all been done before. None of it is new.

It all failed.

The ONLY thing that worked was Government getting out of the way, cutting spending, cutting taxes and let America’s businesses do what they do best create things. Like that Pencil.

Unfortunately trying to tell people to look beyond themselves is seen as somehow insulting and not forward looking. You cannot know where you are going without knowing where you have been and this Government does not remember we have all done this before.

Sources:

On the fallacy of “wartime prosperity” during the Second World War, see Robert Higgs, Depression, War, and Cold War (New York: Oxford University Press, 2006).

Kenneth E. Weiher, America’s Search for Economic Stability: Monetary and Fiscal Policy Since 1913(New York: Twayne, 1992), p. 35.

On Japan, see Benjamin M. Anderson, Economics and the Public Welfare: A Financial and Economic History of the United States, 1914–1946 (Indianapolis: Liberty Press, 1979 [1949]), pp. 88–89, 90.

Robert Aaron Gordon, Economic Instability and Growth: The American Record (New York: Harper and Row, 1974), pp. 21–22, cited in Joseph T. Salerno, “An Austrian Taxonomy of Deflation — With Applications to the U.S.,” Quarterly Journal of Austrian Economics 6 (Winter 2003): 89.

Author Rita Mae Brown in her book Sudden Death on Pg. 68 from 1983.

Quote: “Robert Aaron Gordon, Economic Instability and Growth: The American Record (New York: Harper and Row, 1974), pp. 21–22, cited in Joseph T. Salerno, “An Austrian Taxonomy of Deflation — With Applications to the U.S.,” Quarterly Journal of Austrian Economics 6 (Winter 2003): 89.

“Notable Quotations from George Santayana

‘Those who cannot remember the past are condemned to repeat it.’

Life of Reason, Reason in Common Sense, Scribner’s, 1905, page 284″

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