This week’s Bygone Relics show is reminding us about the panic of 1893. Are there similarities to the current situation? Let’s find out.
I recently had the good fortune to take a vacation which included a couple connecting flights. I booked through one airline and was able to select my seats and I had the exit row and a little extra legroom, but on a couple legs I didn’t have that option. Flights were on time on the way to my destination, the seats were good, and I had a nice time while on vacation. Traveling home, the first legs of the flight were good, but then I looked down at my seat selection for the last leg and I saw with doom 32D. I asked the flight agent if there were any options to move to a window seat which is my preferred seat, but like most flights after Covid, the flight was 100% full.
As I made my way onto the airplane and back to my seat I saw with dread that a very large woman was sitting in my seat. When I asked if she was in the right seat, she realized that no, she was in the middle seat. She scoots over and there isn’t room for the armbar to even come down, we are shoulder to shoulder with some of myself hanging out over into the aisle. Better yet, I am in the last row and sitting in the aisle right in front of the bathrooms so there was a queue of people waiting to use the bathroom the entire time and I can confirm that people have to use the bathroom before the plane takes off, when the seat belt light is one when they should be in their seats and also they also make particularly unpleasant smells on an airplane as well. To cap off this trifecta of perturbations, I had the good fortune of having a crying baby sitting across the aisle from me. The flight attendants sensed my dismay and offered me free alcoholic drinks on the house, but I declined despite having the feeling that I was trapped. For the next seven hours, my life was not going to be good, and it wasn’t. I was trapped and all these things were out of my control, but I could control my perspective about them. I could look on the bright side, my flight wasn’t cancelled, I was lucky enough to take a vacation in the first place so that was good, and my first world problems were the result of living in a country where too many people took a flight causing me some discomfort. Boo hoo!
I was trapped on that flight and it wasn’t anyone else’s fault but my own. I had chosen the flight, I had taken a vacation, and I could have paid a lot more for a first class seat, but I didn’t. I was trapped and it was my fault, just like the Federal Reserve is trapped and it is their fault. They have left the interest rate too low for too long, and they let the genie out of the bottle and now they are trying to put it back in, but it isn’t cooperating. The debt is $31 trillion and the interest on the debt interest expense is about to cross $1T annually any day now. If they leave interest rates high to fight inflation, how are we going to fund the government without printing more money, which is inflationary. We have a currency that countries are actively trying to not use anymore, and we are only devaluing it more by printing more of it. Reserve currency be damned, this won’t end well, but we have covered this already. I have asked you, the listener to start following gold and silver and the dollar because the interplay of these three items will be very interesting in the future, just as they have been in the past. I have talked about how the end of fiat money never ends well, the end of the reserve currency days of the dollar are numbered and they are, but what we haven’t discussed is why we are not on the gold standard, why we went off the silver standard, and why are currency is backed by Joe Biden’s promises today? A good place to learn from is 1893.
I was reading an article called “The Silver Panic” from 1978 written by Lawrence Reed, I will attach the link in the show notes, because I was trying to understand how the inflationary 1970s was from the people’s perspective. Reed writes about how the silver panic of 1893 led to the depression of 1893. He has a great line, “In the case of the Panic of 1893, the tragedy is smothered with the fingerprints of politicians.” He talks about the history of gold and silver and their relationship and the limitations this put on politicians and how the politicians tried to use government interference to manipulate the system. America had dealt with inflation after the revolutionary war, and after the civil war so the populace was wary of printing money, but in 1875 the newly formed National greenback Party called for currency inflation because inflation sounded good even back then. The party was popular in the agricultural west and south, where post-civil war had already brought a depression of 1873. In the 1880’s an agricultural depression led to the formation of the Populist Party, which wanted, you guessed it, inflation. Silver mining state Colorado even elected a Populist governor in 1892 who supported, let me quote this directly from the Colorado encyclopedia, I will tell you what an encyclopedia is one day Austerity, “backing the US dollar with silver because it would expand the money supply and result in inflation, yielding farmers higher prices for their crops while reducing the value of debts owed to banks and other creditors.” The Populist Party arose because the actions of Congress had not gone far enough in the opinions of many. In 1878, congressional bill Bland-Allison was passed which was passed over the veto of then president Rutherford B. Hays. This bill had the government buy silver at an arranged price of 16 oz to one oz of gold rather than let the free market decide the price of gold and silver.
President Hays said “A currency worth less than it purports to be worth will in the end defraud not only creditors, but all who are engaged in legitimate business, and none more surely than those who are dependent on their daily labor for their daily bread.” This artificial buying was very popular in silver mining states like newly formed Colorado. This effect pumped dollars into the economy from the federal government into the hands of the people so even when this country was on a metallic standard, the government couldn’t help screwing it up. Being on a dual metallic standard but having a government partner in the silver business meant that the price of silver started falling from 890 in 1878 to 600 in 1893. Gold flowed out of the country as silver flowed in. Capital left America and returned to Europe and people couldn’t trust the currency and even Americans were trying to get their money out of the US and into Canada, Europe, or even Latin America which were all considered more secure than the US.
D. Noyes wrote in Political Science Quarterly, “The coinage of over-valued silver dollars since 1878, and the issue of Treasury notes on silver bullion since 1890, have actually increased the country’s silver and paper circulation, between 1879 and 1894, by 75%.” How familiar? If you go back to 2008, the M2 money supply of the US was just over $7T and now it is around $21 trillion? Banks lended money easily as there was plenty of money in the system to pay loans back? How familiar? Reed again writes so well and directly, “The economy, drugged by easy money, was showing signs of prosperity. Unemployment, which had been above 5 percent in 1890 and 1891, fell to 3.7 percent in 1892…The boom was, however, only temporary. The twin evils of inflation and uncertainty as to the fixity of the standard were eating at the vitals of the nation’s commerce. Late in January 1893, prices of staples such as wheat and iron, previously on the rise, began to recede.” How familiar? Iron ore prices are down 50% from 2021, wheat prices are also down over 50% since highs made a year ago. Banks in 1893 became concerned and began to restrict credit as loans declined almost 10 percent from February to May. How familiar?
We just had our own credit contractionary event as banks like Silicon Valley Bank went broke and now all community and regional banks fighting for their own lives with uncertainty, are restricting lending to the strongest of borrowers. Signs of distress became more frequent, on February 20th, 1893 The Philadelphia and Reading Railroad, yes Reading Railroad from the monopoly game, collapsed and filed bankruptcy. By spring the government was struggling as gold was flowing out to redeem the treasury notes and merchants, against the law, refused to accept silver, and by May the struggle was over. On May 3, 1893 the stock market crashed, the New York Times said “there was a smashing of values almost without precedent… figures posted at one moment were valueless the next.” Reed continues, “On May 4th, a stock market favorite, National Cordage Trust, went into receivership. Shortly before the panic, Cordage common stock had sold for $70 per share…as Charles Albert Collman vividly explains: “In the Cordage Trust circle of the New York Stock Exchange, hats were being smashed, coats torn, cravats ruined. Here was an agony that meant financial life or death to many. The shares went down to $12.” My god, cravats were ruined people, it sounds like they were as trapped as I was between a portly passenger and a plane of patient potential poopers. As the economy crashed unemployment skyrocketed to 16.7% by 1894. Reed writes, “the chief responsibility for the crisis rested with the attempted force-feeding of the nation’s money supply by government policy. The Commercial and Financial Chronicle said as much on July 8, 1893: “The country is struggling with disturbed credit and the general derangement of commercial and financial affairs which a forced and over-valued currency has developed…Nothing but corrective legislation which shall remove the disturbing law, can afford any measure of real relief.” Sound familiar?
The silver buying legislation was removed later that summer, but the damage it caused would remain. Reed leaves us with this quote and lesson from historian Ernest Ludlow Bogart, “It must be said that the net results of this experiment of a “managed currency” that is, one in which the government undertakes to provide the necessary money for the people, were disastrous. For the maintenance of a suitable supply, the operation of normal economic forces is more reliable than the judgment of a legislative body.” Sound familiar?
We haven’t had the breaking event yet, but all the ducks are in a row, and we are trapped just like I was on the plane. Like in the 1880s Americans wanted the easy money that allowed for the buying of speculative AirBnbs so they could live on travel money and not work, the easy money of buying a house that was way too expensive for them, or the easy money to buy that new Tesla which at over $1000 a month is a preposterous payment for a car. Americans today are driven by the same base urges to get something for nothing than the people driven by horses of the late 1800s. Silver backed currency may be a bygone, but human nature hasn’t changed. No longer is it silver or even gold backing our currency, it is literally nothing, and we still want something for that nothing.
Sincerely Yours,
C Thomas Printer
This week’s financial tip
Silver is at $25 and the all-time high was in January 1980 to $49/oz. What is the metric for following the dollar? Well, a very popular one that is used is called the Dixie or .dxy on the ticker. However, we must know what is in these indexes so we can speak intelligently about them. The Dixie is made up of a basket of currencies: 57% Euro, 14% Japanese Yen, 12% pound Sterling, 9% Canadian dollar, 4% Swedish Krona and 4% Swiss Franc. This is a very popular way to quote the dollar but there are no Chinese Yuan or Russian rubles or Brazilian Reals in this metric so we can use it, but we need to know it limitations. We will talk more about the dollar currency. Today’s homework is to go read the article on Fee.org by Lawrence Reed that I shamelessly quoted throughout today’s show, but do it and not pay attention to the dates. It was written 45 years ago about events that happened 130 years ago…It was eerie to me and I couldn’t believe how prescient it felt.
On this date in history
234 years ago to be exact, George Washington was inaugurated as the first President of the United States.
Also born on this date
Fittingly after the travels of C Thomas being on the road again, country singer and songwriter Willie Nelson.
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