Fair enough. Let’s think about why a few historical articles about Curtis Lemay fit within a publication entitled Whiskey & Gunpowder.

A Great Story — the Route that History Took

First of all, Lemay played a big role in shaping the modern world, in the 1940s, 1950s and 1960s. Lemay’s world is, in many respects, the route that history took to arrive at our world today. So Lemay’s life and times make for a great story, and most people like great stories.

Indeed, the muse of history seldom lets go of a great story. Recall the first words of Virgil’s Aeneid. “Arma virumque cano.” I sing of arms and the man. For near 3,000 years, people have liked great stories. And what better place to tell a great story than in the comfort of the Whiskey Bar? Of course, I know that the Lemay story has taken a number of readers out of their comfort zone. Too bad. Have another drink.

It’s All About NOW!

Then there’s the OTHER reason why I’m writing about Lemay — because I’m not just writing about Lemay.

I’m writing about NOW! I keep saying, “Cometh the hour, cometh the man.” And Lemay was the “man” for the “hour” at a certain time. That’s the history. But what about NOW?

Can we in the U.S., today, recognize our own “hour?” Because that hour is upon us — NOW! We live on the cusp of Peak Oil. We live in a world where the U.S. dollar is poised for a crash. The U.S. is a nation that appears more and more unable to govern itself for the long haul. That’s for starters.

Ours is a complex civilization that could quickly collapse — in every sense of the word. Really, we’ve built a society, economy and political process that’s utterly poised for a takedown. It could be the grid powering off (recall August 2003), natural disaster (Katrina writ large) or the dollar cratering (they’re working on it). We’re set up for an asymmetrical hit.

The Hour Is Upon Us

So the “hour” is here. It’s upon us, if only we would collectively look at the clock and tell time. Can we?

And thus I wonder if we, as a nation, can still recognize the right “man” (or “woman”) when that person is needed. So far, I’m not impressed with who I see entering into, and operating within, the ethereal reaches of U.S. governance.

Is anyone out there putting together a comprehensive energy policy with the vision, drive and speed with which Lemay built the Strategic Air Command (SAC)?

At the Federal Reserve, is Ben Bernanke — recently reappointed as Chairman — really the Curtis Lemay of monetary policy, to defend the dollar over the long haul?

Is the Securities and Exchange Commission guarding the capital markets against the looters of Wall Street? Really, SEC is no SAC.

When I discuss how Lemay gave military advice to presidential administrations full of amateurs and charlatans, does it hit any nerves? Has the U.S. endured any, umm… “long wars,” lately?

Condemned to Repeat It

What’s that old saying? If you don’t study history, you’re “condemned to repeat it?”

And do you know something else? You might even die.

So lighten up, shooters. Sit back. Take another nip. Enjoy the cigar smoke. I’ve got more stories. Lots of ‘em.

Until we meet again,
Byron King

September 17, 2009

Why Military History and Lemay: The Story of Now was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

“Progress” is no sure thing. Beyond the cycles of greed and fear, confidence and desperation, are other episodes that surpass human desires and capacity. Following the collapse of the Roman Empire in AD 476, people in Europe did not wish to become poorer. They underwent no genetic change that made them less intelligent or less suited to material comfort or less adept at technological progress. Yet, technological innovation and material progress went into a slump for nearly 1,000 years. According to historians, the order that had allowed trade and prosperity gave way to disorder and poverty. Who wanted such a change? Why would people permit it? Seeing their standard of living threatened, why did they not do something to counteract it? Surely government officials could simply have come up with new policies that would set things right again?

Likewise, in 1914, although lessons had supposedly been learned from the wars of the nineteenth century, the world once again found itself on a road to disaster, with the outbreak of World War I. From a military point of view, the war had effectively been “won” by France at the first Battle of the Marne in September 1914. France had defeated the German army and forced it back to a line situated not too far from where it had begun. Like many of the other battles fought, the battle of the Marne, with an estimated 512,733 killed, only served to underline the futility of a war. Little was gained at the cost of enormous human sacrifices.

Yet, what came to be known as “The Great War” continued for another four years. By 1916, it had become such a folly of senseless slaughter that the French were on the edge of mutiny. Troops on both sides, seeing no point to the continued bloodshed, often agreed on informal cease — fires. Senior officers repeatedly had to intervene to make sure their soldiers continued to kill each other. Hopelessly bogged down in trench warfare where neither side had a decisive advantage or even a reasonable war aim, sensible men might have decided that enough was enough. Even now, few people can come up with a good explanation for why the nations involved went to war, what they hoped to gain from it, and why they did not stop fighting after it became clear that the war was a losing proposition. It was the costliest war in human history, with an additional 31 million men dead, missing, or wounded.

Moreover, it was no real war in a conventional sense, as neither side had anything to gain, and indeed did not gain anything.

Prior to the French Revolution and industrialization, wars were much more limited. Armies would take the field for short periods of time — usually in the summer, when roads were passable and before the harvests. They would do their mischief and then go home. There were few popular wars. Instead, conflicts were between groups of people whose lands and lives were immediately threatene — by an invasion of barbarians from the East, for example. More often, they were localized rivalries — one monarch against another, duking it out with a relatively small number of paid mercenaries. In 1066, William the Conqueror (formerly known as William the Bastard) took all of England with a force of only about 5,000 men.

In the twentieth century, by contrast, wars involved huge numbers of combatants. Even noncombatants were called on to play support roles. In World War II, American women were called out of the home to work in aircraft plants and take up jobs formerly done by men. Whole populations were mobilized and enlisted in the war efforts, which were far more costly in lives and money than any wars in history, despite the fact that these wars often seemed to serve no other domestic purpose than to lead the way to ruin.

Why did such wars occur in the last century and not before? We have two answers. The first is the standard one: Never before was savagery on such a scale possible. It took industrial economies, abetted by ever-innovative technology, to produce industrial — scale wars. The second: Never before was it possible for so many people to share so many bad ideas all at once. Thanks to progress in communications, men and women were drawn to group thinking like moths to a flame. Soon, they were talking all sorts of nonsense and making their own lives miserable with wars and upheavals that contributed nothing to their well-being, other than being a distraction from their personal problems.

The Internet was not such a revolution as the New Era dreamers had come to believe. The price of communications had been dropping for the past 200 years — from the telegraph, to telephone and radio, to television, to CB radio. These, coupled with cheap newsprint, increased the availability of information to nearly everyone, but they also made much bigger mobs possible, and bigger bubbles, too. Instead of reducing violence in international politics, cheaper communications increased it. At the beginning of the century, railroads, telegraph, and popular newspapers made possible the biggest, most costly war in all human history — with far more people involved than ever before. By the century’s end, the Internet and television made possible the biggest bubble ever — with much greater public participation than at any time in history.

Millennial Optimists

At the end of the nineteenth century, it had also seemed — as it did at the end of the 20th — that progress was inevitable. People expected progress in every aspect of life. The world’ s economies were booming. The industrial revolution was in full throttle and spreading its smoky aroma throughout the world. A person could already hop on a train in Paris and ride in luxury all the way to Moscow. A man in London could order his spiced tea from the Orient and his carpets from Istanbul. Was there any reason to believe that this bounty — products of new technology, free markets, and enlightened political stewardship — would not continue?

By the end of the nineteenth century, the overt use of torture had disappeared in the Western world and slavery had been completely abolished in civilized countries. It seemed — at the height of the Belle É poque — that manners, art, and personal security were improving. Moreover, as Europe had enjoyed nearly three decades without a major war, there was a widespread belief that war was a thing of the past, not of the future.

Yet, only a few years later, the world began walking backward, and the most costly and barbarous wars in history began. Between 1914 and 1919, France lost 20 percent of her young men of military age — and the century had scarcely begun! With hardly a pause for breath, from 1914 to 1945, people shot, tortured, murdered, blew up, poisoned, and starved each other on a scale the world had never seen.

The twentieth century turned out to be a period of what Brzezinski called “megadeath,” with an estimated 187 million victims. By 1945, all of the world’s major economies — save one, that of the United States — were in ruins. Japan, the Soviet Union, and Germany were little more than heaps of ash and twisted metal. France and Britain were mostly intact, but geared up for war, not for peacetime production. Worse, both were in the hands of socialists and syndicalists, which so inhibited their recovery that they were soon overtaken by their former enemies — Germany and Japan. Progress is never guaranteed, neither material nor moral.

The Rape of Nanking

Like it or not, the world is still ruled largely by the heart: It is full of sin and sorrow, sturm und drang, madness, and the kindness of strangers. It is a world whose history, as Voltaire observed, is “a collection of the crimes, follies and misfortunes” of mankind. On December 13, 1937, the Japanese Imperial Army made history. Previous records in depravity were broken when the devil worked overtime for a six-week period. When it was over, an estimated 377,000 people had been slaughtered.

The victims were not soldiers of the Reich or draftees of the Kremlin. They were men, women, and children of all ages and party affiliations. Democrats. Catholics. Confucians. Bricklayers… They shared one common mistake — they were in the wrong place at the wrong time. These people were not obliterated in an impersonal air raid, such as the 60,000 thought to have been killed at Dresden or the 200,000 killed at Nagasaki and Hiroshima. Nor were they killed methodically and systematically as the Nazis and Bolsheviks usually did with their victims. Instead, they were put to death one by one, or in small groups, after being tortured, degraded, and made to suffer as much as the killers’ imagination made possible.

Butchery. Barbarity. Bestiality. It is hard to describe what happened in words that do it justice.

When the Roman legions destroyed Carthage, they took the lives of about 150,000. Timur Lenk killed 100,000 prisoners at Delhi in 1398. He built towers of skulls in Syria in 1400. Yet no cameras recorded the spectacles. Meanwhile, the photos in Iris Chang’s book, The Rape of Nanking, provide evidence against those who believe in the inevitability of moral progress. The event in question occurred more than 100 years after the Rights of Man had been declared. And nearly two millennia after the birth of the Prince of Peace. The prohibition against murder was well-established in all major religions. Of course, the victims would have welcomed murder — it would have been a comfort, like a stop loss in a bear market.

Japan is one of the world’s most law — abiding and polite societies. But storms of evil blow up from time to time. No race or nation is beyond their reach.

Those who believe in the perfectibility of man have a lot of explaining to do.

Regards,
Bill Bonner and Addison Wiggin

August 14, 2009

Industrial Slaughter and War: The March of Progress was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Instead, history turns its attention uniquely to the events on English soil, where the small band of warriors debarked to go into battle. Theirs seemed to be a hopeless enterprise. How could such a small army hope to avoid annihilation, let alone conquer a whole nation? But that is history…a story of such remarkable campaigns, battles, revolutions, uprisings, popular movements—all presumably marching toward the progress of mankind, all, presumably, “good things.” For without them, where would we be? No one knows. What if the Normans had stayed home? What if they had tended their fields, sought better ways to increase crop yields, put up more beautiful buildings, and given another kiss to their wives and children? Would the world be a worse place? We cannot tell.

However, in markets as well as politics, history is not made by the tailor, the baker, or the capitalist going about his work. It is made by mobs of tailors, bakers, and capitalists embarked on some enterprise, which is far beyond what any of them can know or understand, and which is usually absurd and often fatal.

Events in the twentieth century had been kinder to the United States than to their European cousins. Americans had taken part in the major wars, but had suffered far fewer casualties than other combatants. France lost nearly 6 million men in World War I, the United States 116,516. In World War II, the United States had 405,399 casualties, but the Soviet Union had more than 21 million (civilian deaths included). No U.S. cities were leveled.

Nor were there any civilian casualties to speak of. And U.S. industries, instead of being destroyed like those of Germany and Japan, ended the wars in a stronger position than when they had begun them.

It was not, then, reason that had shaped Americans’ belief in progress…but experience. After such a long spell of apparent progress (interrupted only by a few quarters of negative economic growth in the Great Depression), Americans at the end of the twentieth century had begun to think that progress was the nature of things, and that the level of technological and organizational perfection they had achieved had brought on the blessings of progress at a faster rate than ever before. What’s more, many of them thought that the temporary lulls and brief periods of backsliding experienced by the country since the end of World War II had now been eliminated. Thinking Americans attributed this giant leap forward neither to the grace of God nor the beneficence of nature, but to their own genius.

By the time the oldest members of the postwar baby boom generation had reached maturity (late 1990s), progress had begun to look easy, logical, even inevitable. Americans believed themselves to be masters of the business cycle, of technology, of the planet.

Myths of Progress

In what might have been an equivalent of the four-minute mile, Iaroslav Tchij, on a collective farm in the Lvov region of the Soviet Union in 1959, reduced a hog to 100 kilos of meat in just 5.6 hours. This might seem like a leisurely pace, but it took an hour less than foran American to do the job.

The Communist era began after the invention of the telegraph and was still going strong after radio, telephone, and television had become ubiquitous. But as we will see, information provided no defense against exaggeration and myth. Mr. Tchij, for example, was not alone in believing he could increase productivity in such a remarkable way. In fact, one of the myths of Communism was the idea that productivity would increase without interruption and at spectacular rates. This was not based on any observation. It was derived from theory.

The founding fathers of Communism, like Internet investors, believed that a new era had arrived. It was founded neither on observation nor on hope, but on what they thought were the laws of history. In his funeral oration for Marx, on March 17, 1883, held in Highgate Cemetery, Engels honored Marx as “the Darwin” of economic history. Just as Darwin had discovered the key laws that governed the evolution of natural history, Engels said, Marx had discovered those that governed economic and political history. These laws, such as the concept of “surplus value,” which supported Marx’s critique of capitalism, were not laws at all, just pretentious obiter dicta, as Paul Johnson described them. Yet they formed the basis for the many myths that inhabited the fantasy world of Communist society.

The myth of determinism, for example, meant that everything had already been worked out according to the principles Marx described. The myth of progress, whereby conditions improved year in year out, was a myth disproved by Communism itself. The myth of the Marxist New Era held that the entire world would be re-created, not by God or nature, but by man, following the scientific and rational concepts of historical determinism. Finally, there was the myth of the New Man. This new Marxist man, not having the same hard wiring as other men, would be an entirely new being. He would not need a profit motive, for example. Nor would he wish to accumulate wealth or worry about his own family, as all his material and service-based needs would be supplied by the collective.

As irrational as these notions were, they were nevertheless taken up and endorsed enthusiastically throughout the twentieth century by various despots and crackpots. Not only were they argued over endlessly in the cafés of Paris, but they provided the foundation of an entirely imaginary world.

Soviet policy makers for example (again, like Internet investors) saw no reason why they should be constrained by the growth rates observed in the past. Without private property and private business, they thought that there would no longer be a business cycle to worry about. Communist growth projections became the measure of reported (though imaginary) growth: The Soviet Union’s economy was thought to have multiplied itself 36 times between 1913 and 1959. The economy of the United States, by contrast, only increased by a factor of four. Soviet leaders predicted that the size of their economy would surpass that of the United States in a dozen years.

But even this rate was sluggish to the North Korean dictator, Kim Il Sung. If you could determine economic growth by decree, he reasoned in 1969, why be satisfied with 15 percent? In his text titled On Some Theoretical Problems of Socialist Economies , he declared that there was no reason for communist economies ever to slow down, and that growth rates of 30 percent to 40 percent per year could be maintained. Three decades later in his “socialist economy,” millions of people were starving.

Kim should have paid attention when his fellow delusionary, Ceaucescu of Romania, addressed the agricultural issue. Ceaucescu decided to put his country in “the forefront of world agriculture.” This he accomplished in the most straightforward and expedient fashion: He simply multiplied per acre production figures by four. Marxist myth held that collective farms would be vastly more productive than old – fashioned independent farms. Thus, Ceaucescu merely brought the myth to life, realizing it in the spirit it deserved — mythically.

Even the Communist leaders themselves were myths: Mr. Djugashvili, a rather untalented former seminarian and New Era aficionado, became “man of steel,” Josef Stalin. Meanwhile, Kim Il Sung turned himself into a virtual deity, a mythical god, who became an object of worship for his impoverished people.

The astounding thing was how ready people were to believe such myths. American economists calculated that the Soviet economy must be 50 percent or 60 percent the size of the U.S. economy, and gaining ground. For decades, the Soviet Union was listed as the world’s second biggest economic power. But it was not true. The Soviet Union and North Korea were not getting richer, but poorer. Their people were not becoming more productive, but less productive.

Regards,
Bill Bonner and Addison Wiggin

August 12, 2009

Making History and the Myth of Progress was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

That major wars occur at such long remove from each other probably isn’t an accident. Really catastrophic wars, from at least the days of Troy on down, have usually been the Great Events that resound through living memory. The Great Event of a century forms the thought and character of everyone alive when it happens, influencing them relative to the stage of life they’re in at the time. Perhaps that’s why a people will collectively do its best to avoid a repeat, at least while there’s anyone still alive who saw the last crisis.

(It’s been said that war is a force that gives life meaning. And I think that’s true, although it’s perverse that the most destructive and idiotic activity that it’s possible to engage in would just have to be the most important. Maybe, after the orgy of self-indulgence and conspicuous consumption that has characterized the past couple decades, Americans collectively feel they need to prove something. There has to be some rationale for the current war hysteria other than pure stupidity…)

In any event, the way the current generations line up relative to historical analogs, an excellent case can be made the U.S. is approaching another time of secular crisis, a Fourth Turning, with an expected due date of 2005 – seven years from now – plus or minus a few years in either direction. The Stamp Acts catalyzed the American Revolution, the election of Lincoln catalyzed the Civil War, the Crash of ‘29 catalyzed the Depression/WW II era. What might precipitate the elements now floating in solution? The answer is, practically any random event that’s sufficiently traumatic. Any of the theses of current disaster/action novels and movies will do nicely. Perhaps the accidental or intentional release of a super plague vector. The crashing of an airliner into the Capitol during a joint session. (Close, but not quite.) An all-out assault on the IRS computers by an armed group – or perhaps the computers just melting down due to the Year 2000 Problem. Perhaps a financial disaster that cascades into the Greater Depression. In any of these, or a hundred other scenarios, the federal government would almost certainly act precipitously and with a heavy hand, which would bring on a whole other set of consequences.

(In the historical context, 9/11 will be viewed as the opening kick-off for the coming Crisis… and the messianic overreaction of Bush and his cronies as the catalyst for turning things from bad to worse. It may be that Hurricane Katrina, for instance, a completely accidental event, may be blamed for providing a pin to burst the financial bubble – which would be a pity, since the neocons could then blame it, not themselves.)

There’s no way of telling where the Crisis will lead, or how it will end. That’s going to depend not only on exactly who’s in control, but what they do, whom they’re up against, and a hundred other variables we can’t even anticipate. One thing that seems certain is that real crisis brings out strong (although not necessarily wise) leadership. Because of its age and size, it will come from the Boomer generation, and it will be in the mold of Roosevelt or Lincoln – both very dangerous precedents. The Boomers in Elderhood will be dogmatic, harsh, puritanical, and quite willing to burn down the barn in order to destroy whatever rats they see. Admix that attitude to a time resembling the Revolution, the Civil War, or WWII, overlain with today’s ethnic strife, urbanization, financial overextension, and powerful, compact new weaponry in the hands of foreign fanatics out to teach the Great Satan a lesson, and it’s a real witch’s brew.

If things evolve over the next decade as they did in past analogs, it will be a very un-mellow time indeed. That’s assuming things end well, and there’s no guarantee they will, as many foreign countries have discovered throughout history. We’ve been uniquely blessed.

What to Do

Strauss and Howe aren’t financial types, and their advice is nebulous along those lines. To sum it up, their suggestion is to learn to swim with the tide by not hoping the current good times last forever; the chances of the good times are coming to an end now. They’d also advise not sticking your head up above the crowd, something that is always very risky when times are in turmoil; remember what happened to Japanese-Americans during the last crisis. They suggest that there will likely be a resurgence of nationalism, much as was the case during past crises. It won’t be a good time to be a maverick in the U.S., a thought that makes places like Argentina and New Zealand look even more appealing.

(I bought property in both places shortly after this was written, and have been rewarded with a quadruple in both instances – considerably better than would have been the case in the U.S.)

Strauss and Howe suggest you look to diversify in all things, so everything won’t go bad at once. Brace for the collapse of public support mechanisms. Set your roots with your family, because people you can rely on will be at a premium. Heed emerging community norms, bond with like-minded people, and return to basic, classic virtues. This is sound advice any time, but critical if you’re rigging for heavy weather.

Assuming you wanted to stay in the U.S., you’d rather be on some land near a small town, and far away from a major city. You’d want to be self-sufficient in as many ways as possible – freeze-dried food. etc. Perhaps Howard Ruff will make a comeback with advice like that, which seems quaint today. But then I’m nothing if not a contrarian.

(In hindsight, the original article could have been a bit more specific – other than the suggestions about Argentina and New Zealand. Personally, I believe that unassailable wealth is the best protection against global crisis. For it to be unassailable, your wealth must be at once substantial, free from threat of confiscation, divorced from the whims of the masses, and located in a country or currency that has a good risk/reward profile. Unfortunately, the U.S. doesn’t make the cut.

In the first instance, the single best way to build wealth now, while there is still time to do so, is in carefully selected gold and other resource stocks. In order for it to be free from the threat of confiscation, at least some part of your wealth needs to reside in a country where you don’t. To state the obvious, I would be very cautious about traditional stocks and bonds until we see how things shake out. Rather, get positioned in gold and silver stocks now, ahead of the curve, then sell out for a big profit to the panicking masses and move an increasing percentage of your wealth into tangibles such as gold, silver, and maybe, as part of a diversified portfolio, real estate in especially attractive areas – but only after the bubble has decisively burst.)

A Parting Parable

In case you have any doubts, I buy the theory outlined above and its many ramifications that there isn’t room to explore here. It really is scary to think that we could again experience a real Crisis with a capital C; I’m not talking about just a bear market in stocks. If it happens, I promise you stocks and mutual funds will be about the farthest things from most people’s minds.

At the same time, there’s no point in feeling terrorized. This stuff has been going on since the dawn of history. So let me leave you with a parable. I could appropriately quote Ecclesiastes (To every thing there is a season, and a time to every purpose under heaven: a time to be born, and a time to die, a time to plant, and a time to pluck up that which is planted, etc., etc.). But everyone knows that reference. Let me rather give you John O’Hara. At the beginning of O’Hara’s novel Appointment in Samara, he tells a brief parable, which I’ll summarize:

There was a merchant in Baghdad who went to the market with his servant. There they saw Death, who stared at the servant in what seemed a threatening way. Later the servant said “Master, lend me a horse. I shall ride to Samara, and there Death will not find me.” The merchant did so, then returned to the market, where he again saw Death, whom he approached and asked why he had stared at his servant in such a threatening way. Death responded, “I wasn’t threatening him. I was just very surprised to see him here in Baghdad, since I have an appointment with him in Samara later this afternoon.”

(Strange, the location for the proverb, in that this was well before the current war.)

There is no doubt that we are now in the Crisis stage… which, according to Strauss and Howe’s “Turnings” theory, may last another decade or more. Is there any way to escape this economic tsunami unscathed?

Regards,
Doug Casey

January 21, 2009

Foundations of Crisis, Part III: War (So What’s Next?) was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Just as each person’s life holds four stages of about 20 years each, each generation comprehends a group of people born over about 20 years. Members of a particular generation tend to share values and ways of looking at the world not only because their parents also shared a set of views (which the kids are reacting to), but because every new generation experiences a new set of events in a way unique to them. They hear the same music, see the same events, are exposed to the same books. Members of a generation share a collective persona. There appear to be four distinct archetypal personae that recur throughout American history. And throughout world history as well, although that’s a bit beyond what I hope to explore here.

It also seems, throughout history, that there are periodic crises. About once every century, or about when each of the four generational types has run its course, a cataclysmic event occurs. It generally takes the form of a major war, and it generally catalyzes a whole new epoch for society.

The four mature generations alive today each represent an archetype. Let’s review them from the oldest now living, to the youngest.

Hero Archetype

The “GI” generation, born between 1901 and 1924, includes basically all living people in their mid-70s and older. They grew up and came of age in the midst of the most traumatic years in human history: the 1930s and ‘40s. This was a time of catastrophic financial and economic collapse, world war, political dictatorship, genocide, and virulent ideology, among other unpleasant things; a period of intense turmoil. The times required them to be civic minded, optimistic, regular guys who could be counted on to do the right thing, fit in, and see that everybody got a square deal. As a consequence of what they’ve been through, they tend to be indulgent parents. As kids they’re “good”; as adults they’re selfless, constructive, and communitarian. Hero archetypes encounter a Crisis environment in Young Adulthood; assuming they survive it, the odds are the rest of their lives will be lived in growing economic prosperity, leading to a leisurely retirement.

Artist Archetype

Meanwhile, another generation was being born at the height of the Crisis – something that seems to occur roughly every 80-100 years – from 1925-42. This generation, the “Silent,” watched these titanic events happen but were too young to take part in them. They were relegated to being protected, while trying to be helpful in the limited ways available to them. They’re overprotected as children, when they might be characterized as “placid”; they tend to underprotect their own children as a reaction. As adults they’re sensitive, well-liked, sentimental, and caring.

Prophet Archetype

Next came the group we call the “Boomers,” born from 1943 to 1960. This was the first generation born after the Crisis was over, and they grew up in an environment where their parents (mostly GIs and early cohort Silents) felt obligated to protect them from all the trauma of the preceding years and were desirous of giving them all the things they never had. As kids they’re seen as “spirited.” Later in life, they tend to be narcissistic, presumptuous, self-righteous, and ruthless. Born after a Crisis, their Childhood years coincide with a rebirth of society, and their Elderhood coincides with another Crisis. More on them below.

Nomad Archetype

The fourth generational type is represented by today’s “Generation X,” born 1961-81, during what might be called an Awakening period when the Boomers were in the limelight. As a consequence, they were overlooked and a bit abandoned. Their reputation as kids can be summed up as “bad.” They’re oriented toward survival, which is partially a result of their being underprotected as children. When they become parents, they react and become overprotective. They tend to be savvy, practical, tough, and amoral.

The kids born between 1982 and perhaps 2002 should be another Hero archetype. My own experience with them is that they’re shaping up that way. Represented by clean-cut, straight-arrow Power Rangers. Quite a reaction to the sewer-dwelling Mutant Ninja Turtles that were analogs for the previous generation. They’re “‘can do” kids, programmed to do the right thing in a smoke-free, drug-free, eco-sensitive, politically correct world. Like all Hero types, they respect their elders, do what they’re told without much questioning authority. That’s just the type of person you want to have fighting a war for you, and that’s probably just what they’ll wind up doing. Just like the last Hero types, the GIs. (Iraq was first. Iran next? Or will it be Saudi Arabia?)

It’s risky to characterize everyone born in a certain time frame as sharing a persona; after all, people are individuals, not ants or atoms, each like the other. But it’s really no different than characterizing people by the country they’re from. There’s no question in my mind that people share characteristics by virtue of the milieu in which they live, and that’s true of time as well as geography. Take a look at the people you know by age groups, and see if they don’t roughly fit the brief descriptions.

The interesting thing is that through about 400 years of American history, it’s possible to see these generational types repeating themselves. It’s not an accident. The characteristics of each type shape the next generation, as well as current events. And events leave a further imprint on all of them.

Making an Example of the Boomers

Just as every generation has its own persona, the character of each generation evolves as it moves through life. The Boomers are perhaps the most relevant example of this. First they were Mouseketeers and Beaver Cleaver clones. Who could have guessed they would mutate into Hippies and even Yippies as they reached Young Adulthood, reacting against everything they’d grown up with, everything their parents worked so hard to give them.

They came of age during a period that might be called an Awakening, and it’s recurred on schedule five times so far in American history. Awakenings are times of religious and moral ferment, when the youth tend to challenge prevailing cultural values pretty much across the board. Young adults were into New Age things this time around, in the 1960s and ‘70s. At the time it seemed utterly shocking and completely new, but that was only because nobody then alive had seen the previous Utopian Awakening in the 1830s and ‘40s, the Pietist Awakening of the 1740s and ‘50s, the Puritan Awakening of the 1630s and ‘40s, or the Protestant Reformation of the 1530s and ‘40s.

Like all the generations before them that grew up in similar times, they eventually put away the things of their youth. But who guessed that their next mutation would be into Yuppies, whose motto was not “Peace and Love” or “Revolution for the Hell of It,” but “Shop Till You Drop” and “He Who Dies with the Most Toys Wins” as they moved into midlife.

But even now the acquisitive mania that characterized the ‘80s is ebbing, now that the first cohorts of Boomers are crossing over 50. You can already see the signs of their next stage of evolution, in the judgmental behavior of people like William Bennett (George Bush) and Dan Quayle (Ann Coulter) on the “right,” and Al Gore and Hillary Clinton on the “left.” They did sex, drugs, and rock ‘n’ roll in the ‘60s. They believe they’ve fought the war of good against evil in both Vietnam and the segregated lunch counters of the South. They know they were the first generation to have traveled widely thanks to the jet, to have been brought up by television, and had the telephone as a given. They’ve been there, done that, and now that they’re getting older, they’re going to make sure that everyone else benefits from their wisdom – like it or not.

The Boomers are an archetypal Prophet generation, a type born after a secular crisis, just in time to create another one. Get the image of a grim elder, with a well-defined vision of what’s right and wrong, calling down wrath, and laying down the law for a troubled nation in chaotic times. That’s the type of person who tends to lead countries into wars, as well as through them. Interestingly, the Boomers in America have their counterparts abroad today, especially in China, where they grew up during the Cultural Revolution. Two ideologically driven, righteous groups running two such powerful and alien cultures is almost a guaranteed formula for a millennial-sized crisis. Which should appear, coincidentally, sometime shortly after the millennium. (We’re right on schedule.)

Regards,
Doug Casey

January 20, 2009

Foundations of Crisis, Part II: Generations was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

As you will read, the methodology I relied upon for anticipating the events that are now unfolding – 11 years later – were actually quite accurate, confirming, in my mind at least, that now is a time to be very cautious in your personal and financial affairs.

The article is unaltered in its text from the original, though I have added some current commentary in bold italics.

Foundations of Crisis

“Don’t know much about the Middle Ages, look at the pictures an’ I turn the pages. Don’t know much about no rise and fall, don’t know much ‘bout nothin’ at all.“

– “Wonderful World,” Sam Cooke

The lyrics quoted above probably describe the average American’s knowledge of history about as well as any academic study. Not only don’t they know anything about it, and think it’s irrelevant, but what they do know is inaccurate and slanted. And they must not think very much about the future either if the amount of consumer debt out there, mostly accumulating at 18% interest, is any indication.

One point of studying history is that it gives you an indication of what’s likely to happen now, if you can find an appropriate analog in the past. This is a tricky business because as you look at factors contributing to a trend, it’s not easy to determine which ones are really important. Making that determination is a judgment call, and everyone’s judgment is colored by his worldview, or Weltanschauung as the Germans would have it.

Let me briefly spell out my Weltanschauung so you can more accurately determine how it compares with your own, and how it may be influencing my interpretation of the future.

I’m intensely optimistic about the long-term future. It seems to me a lock cinch that the advance of technology alone – and nanotechnology in particular – will result in a future of incredible abundance and prosperity, and that alone will solve most of the problems that plague us. Space migration, intelligence increase, and life extension will be commonplace realities. These things, plus the growth of both knowledge and its accessibility and the concomitant rise of the individual from the group, will constantly diminish politics as an element of life. The future will be much better than anything visualized on Star Trek, and will arrive much sooner. That’s the good news.

The bad news is that within the longest trend in history, the ascent of man, there is plenty of room for setbacks, and much of history is a case of two steps forward and one back. My gloomy short-term outlook, and my reasons for maintaining it, is recounted here monthly. Whether it’s right or wrong, from an investor’s point of view, the short term is more relevant than the long term. Notwithstanding Warren Buffett’s great success in going for the long term, Keynes was right when he said that in the long run we’re all dead. History shows that goes for civilizations as well as people. The problem is that our civilization is probably just now on the cusp of the long term.

Hari Seldon: Where Are You When We Need You?

Isaac Asimov’s classic Foundation trilogy centers around a scientist, Hari Seldon, who invents a science called psychohistory, which allows the fairly accurate prediction of broad trends in society going for centuries into the future. Seldon lives on Trantor, the planetary capital of a galactic empire; the entire planet is covered with a high-tech version of Washington, D.C., devoted to nothing but taxing and regulating the rest of the galaxy. Seldon forecasts that the empire will collapse and Trantor turn into a gigantic ghost town. And of course that’s what happens, because it’s a novel, and that makes for a good story. It’s a good story because it’s credible, and it’s credible because people know nothing lasts forever, and there is a cyclicality to everything; birth, youth, maturity, senescence, and death. These stages are shared by everything in the material world, whether it’s a person, a city, a civilization, or a galaxy. It’s just a question of time and scale.

From that point of view everyone knows the future, i.e., we all know that everything eventually dies. But we’d like a bit more precision on the timing of their lifecycles. Some gurus believe, or appear to believe, they can actually predict the details of the future; I consider them knaves. People who actually do believe them should be considered fools. That said – Nostradamus, astrology, channeling, tea leaf reading, and the like aside – I do think the best indicator of what will likely happen in the future is what has happened in the past. That may seem like an obvious statement, but it’s not. There have traditionally been three ways of looking at the problem; call them theories of history.

Oldest is what might be termed a chaotic view, which presumes mankind doesn’t have any ultimate destination but is wafted on the wings of Fortune or hangs by the thread of Fate. Subject to the arbitrary will of the gods, whether it’s the Old Testament’s Yahweh, or Homer’s Zeus, the future is unpredictable, and prophecy or an oracle gives you as good a read as anything else. I discount this theory heavily.

A second ancient view is that everything is cyclical, and therefore somewhat predictable. History may be viewed like a giant sine wave that’s possibly headed somewhere, but the direction is unknown. Or history is really a circle, constantly repeating itself, much like the four seasons of the year. There’s a lot of wisdom to the cyclical view.

The third view sees history as a linear sequence, one that’s actually headed somewhere. That view holds a special appeal for followers of evangelically oriented religions, particularly Christians (many of whose beliefs have an apocalyptic tinge) and Marxists (who were, until lately, given heart by the “scientific” inevitability their views would prevail). The linear view ties in with the idea of Progress, that (more or less) every day and in every way, things are getting better and better – although there’s also a subculture populated mostly by deep ecology, animal rights, and anti-technology types who believe things are headed to hell in a hand-basket. But they all believe we’re headed somewhere in a more-or-less straight line. There can be a lot of truth to the linear view, certainly if you look at the technological progress of mankind over the past 10,000 years, and this view prevails today.

My own view is a synthesis of the cyclical and linear theories. I see history evolving towards an incredibly bright future, but cyclically suffering setbacks, cyclically repeating the same patterns along the way. To me history looks like a spiral, heading off in a specific direction, but always covering the same ground in a different way with each revolution.

That’s one reason The Fourth Turning (Broadway Books, NY, 1997) by William Strauss and Neil Howe got my attention; we’re all drawn to those who see at least part of reality the way we do. The book is an extrapolation of their last work, Generations, and notwithstanding its literary faults, is simply brilliant. I’ve never met Howe, but did have lunch with Strauss once about five years ago. The way I see it, although they’re both conservatives, neither of them has any particular economic, political, or social philosophy, and they’re not trying to grind an ax. Their books are a value-free look at U.S. history, and their conclusions are more credible as a result.

Their basic hypothesis is one I suspect Hari Seldon would recognize, and my thoughts are built on the research Strauss and Howe have done over the years. I suggest you get a copy of The Fourth Turning while it’s still in the stores. That’s also true for my own Crisis Investing for the Rest of the ‘90s, which has several chapters on related subject matter, and Arthur Herman’s just-released The Idea of Decline in the West, which also bears on the subject. With 50,000 new books published every year, very few stay available for more than a few months. If something has appeal, you should buy it now, because it may be hard to come by when you have the chance to get into it. (Of course, I was wrong on that point — websites such as Amazon and Alibris.com now make it easy to pick up many older books.)

Regards,
Doug Casey

January 19, 2009

P.S.: I’ll be back tomorrow with more. See you then.

Foundations of Crisis was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

That level — just above $750 per ounce — also happens to sit right where the uptrend starting in Sept. 2005 now lies. Meaning, for technical analysts at least, either a test (and perhaps collapse) of the bull market…or a screaming opportunity to buy gold on the cheap.

Whichever way prices now move from here, however, it’s worth considering the typical shape of a year in the life of the gold market:

As this chart shows — swapping the Dollar for British Pounds Sterling, to remove the impact of the Dollar’s 30 percent drop on the foreign exchanges — the past 10 years have seen the gold price follow a clear and regular pattern.

There have been exceptions, of course — most notably 2003 and 2006 — when the “summer lull” that followed a sharp rise failed to match those high prices again by late-autumn.

But in the main, and with a near-tedious rhythm, the price of gold has risen in spring, slipped back or steadied in summer, and then enjoyed very much sharper gains once more, before the next year really gets started.

CAVEAT INVESTOR: There are no guarantees this shape could be repeated this year. With the gold price falling so far, so fast, from its recent all-time record highs, sentiment among professional and institutional traders has clearly turned against the metal.

Gold buying by the world’s No.1 buyers, meantime, has indeed collapsed, with imports to India dropping by 47 percent in the first half of 2008 from the same period last year. Indian gold buyers tend to account for the surge in physical buying seen during the autumn, as their festival season culminates in Diwali, the “festival of lights.”

Diwali falls at the end of October this year. Reports out of India say the recent sharp falls in gold prices have already led to strong investment and jewellery demand. And here in the West, the economic background remains very bullish for gold — at least according to history.

U.S. interest rates now lag inflation in the cost of living by more than three percent. A mountain of leveraged debt still teeters above Manhattan and the City of London. Government debt is rising worldwide, with a true “monetization” of bad loans at Freddie Mac and Fannie Mae now only a few weeks or months away.

If you thought about buying gold but were deterred by this spring’s sudden high prices, it may be worth noting that the case for gold remains as it was. Too much debt, plus too much inflation, threatens to destroy the value of savings and wealth held in paper (whether in bonds, cash or equities). Physical gold, in sharp contrast, cannot be created at will. Owned outright — in your name alone — it’s also no one else’s liability or promise to pay.

Professional gold bars, stored securely and at very low cost in — say — Zurich, Switzerland, also represent one of the world’s deepest and most liquid capital markets. That’s simply not true of gold coins.

And it’s worth noting, perhaps, that if the coin and small bar market can hit sudden supply problems like the current squeeze even as prices are falling, just what might become of liquidity — the ability to sell quickly for full value — when private investors come to sell en masse…?

Regards,
Adrian Ash

August 19, 2008

Gold: Cheap as Chips…? was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

In this review of a new and brilliant three-volume set of books entitled History of Financial Disasters 1763-1995, I will talk about just these subjects: disaster and financial disaster. And I will give you a unique opportunity to obtain an insider’s view of what happens when the proverbial roof caves in on your financial house.

The Nature of Disaster

WHAT IS A DISASTER? The Latin roots of the word are “dis” and “astro.” Literally, the two combined words mean “ill-starred.” In ancient times, if you offended the gods, the deities would align the stars against you and bring a bad set of events down upon your house, if not upon your head. So the word itself has come to mean, according to the Oxford English Dictionary, “a sudden or great misfortune; an event of ruinous or distressing nature; a calamity; complete failure.” Let’s look at some examples, just to illustrate the point.

Everything Was Destroyed

In classical times, there was hardly a more disastrous event, or an event with more calamitous outcome, than the Athenian invasion of Sicily in 415 B.C. This disaster was chronicled by no less than Thucydides in his classic work, The Peloponnesian War . The short version of the story is that the Athenians had been fighting the neighboring Spartans for many years and eventually decided to attempt to break what had turned into a military stalemate. The Athenians determined to outflank their enemy by sending an army halfway across the Mediterranean Sea to Sicily and raising a threat to Sparta’s rear.

But talk about offending the gods? Someone sure did. (Thucydides said that it was Alcibiades, but who really knows?) The Athenians were filled with hubris at the prospect of their own success. But their distant expedition met with trouble from the outset, encountering almost every form of problem that a distant military campaign could have. And once the Athenians had landed on the shores of hostile Sicily, things went from bad to worse. After losing a major battle at the Sicilian town of Syracuse, the Athenians were thrown into headlong retreat. Eventually, the soldiers of Syracuse caught up with the main body of Athenians at the Assinarus River, on the southeast coast of Sicily. There, according to Thucydides, the thirsty Athenians were slaughtered in droves as they trampled each other trying to get to the water.

Thucydides summed up the expedition to Sicily in sad words, but words that still convey the sense of total loss. In the end, he wrote, “They were destroyed, as the saying is, with total destruction, their fleet, their army, everything was destroyed, and few out of many returned home. Such were the events in Sicily.” Now there is a disaster for you.

Every Man for Himself

Let’s take a look at another disaster, the sinking of the steamship Titanic on the night of April 14-15, 1912. It is a familiar story in many respects. You may have seen the 1997 award-winning movie, or read one of the many good books that chronicle the event. Titanic was a big, expensive ship that was constructed according to the highest levels of naval architecture of the age. The captain of the Titanic, a skilled mariner named E.J. Smith, once said, “I cannot conceive of any vital disaster happening to this vessel. Modern shipbuilding has gone beyond that.” But what Capt. Smith did not appreciate is that the steel used in constructing the ship was brittle, and that the steel became even more brittle when it was chilled to freezing temperature in the cold waters of the North Atlantic.

When Titanic scraped its side along the fateful iceberg on the night of April 14, 1912, the brittle steel of the ship fractured in many places. Also, the force of the ice moving along the side of the hull literally scraped the rivet heads off the outside of the vessel. Within moments, Titanic suffered thousands of small penetrations in its hull due to the popping of rivets, each small rivet hole allowing seawater to pour into the ship. Titanic was doomed.

So the good Capt. Smith could “not conceive of any vital disaster happening” to his vessel? “Modern shipbuilding has gone beyond that”? Talk about offending the gods. There is some more of that hubris for you.

On the night of April 14, 1912, a star of ill fate must have shone down from the heavens upon the glassy sea, because Capt. Smith was heard to say something quite different. Toward midnight he gave an order: “Prepare the lifeboats.” And later, in the wee hours of the morning of April 15, he shouted as the water lapped over the bridge: “Every man for himself.” And then the cold sea took Capt. Smith and he was never seen again. So things change, don’t they? Disasters occur.

Major Malfunction

“But mankind has moved beyond these sorts of things,” some people still say. Yes, of course. Except that we humor ourselves when we say such things. The same sorts of calamities still occur. We suffer from the same sense of hubris that doomed the Athenian army and the good ship Titanic and its captain. Mankind still has that almost willful blindness to exercising the vision to forecast and avoid disaster in the making.

For an example of a modern disaster, no one who was around at the time could ever forget the famous words broadcast from NASA’s Mission Control on Jan. 28, 1986, perhaps the understatement of the age: “It appears we have had a major malfunction of the vehicle.”

“A major malfunction?” Space shuttle Challenger had just exploded, less than two minutes after liftoff. The vehicle was destroyed. The crew was killed. Debris rained down from the sky, falling into the blue sea offshore Cape Canaveral. And it was all on television, live and in color, no less.

The immediate cause of the Challenger disaster was a faulty device called an “O-ring,” part of an otherwise tight seal between two sections of one of the solid rocket boosters. When cooled to a freezing temperature, as had occurred on the cold night before the deadly launch, the rubber in the O-ring lost its resilience and became somewhat brittle. (Brittle due to the effects of the cold? Where have we heard of something similar?) During the stress of launch, the exhaust from the solid rocket booster literally burned through the O-ring, causing the rocket booster to shift from its proper position in flight, resulting in a sequence of failure events that led directly to the explosion that destroyed Challenger and killed the crew.

Common Features of Disaster

So can we really say that a disaster results from just the single triggering event? Of course, every disaster has its penultimate cause. In Sicily, the Athenians lost a battle at Syracuse. The rivet heads of the Titanic were shaved off. And the O-ring on one of Challenger’s booster rockets burned through. But is this the end of how to think about it? Not by a long shot. Thucydides, for example, writes his history but does not shirk from detailing a chain of errors and misjudgments on the part of the Athenian leaders who sent their army to its doom in Sicily.

And in the case of the lost Titanic, as fate would have it, a man named J. Bruce Ismay, one of the directors of the White Star Line that owned the vessel, was aboard when disaster struck. Ismay survived the Titanic’s sinking by leaping into one of the last lifeboats that dropped from the doomed vessel into the freezing ocean. Later on, Ismay was greatly criticized from almost every quarter, because he survived the sinking when over 1,500 others did not.

One of the most trenchant critiques of Ismay came from the U.S. Navy’s Rear Adm. Alfred Thayer Mahan, the great historian, strategist, and visionary of sea power. Mahan was more than critical of Ismay’s retreat to the lifeboats. Despite his position as an owner of the sinking vessel, Ismay took to a lifeboat and abandoned hundreds of passengers and crew to death by drowning in the freezing sea. Mahan wrote:

“We should be careful not to pervert standards. Witness the talk that the result is due to ‘the system.’ What is a system, except that which individuals have made it and keep it? Whatever weakens the sense of individual responsibility is harmful, and so likewise is all condonation of failure of the individual to meet his responsibility.”

In the case of the Challenger explosion, no less a mind than Richard Feynman, physicist and Nobel Laureate, noted that the source of the explosion was a pervasive cultural disease within the institution of NASA. Feynman noted that NASA had evolved away from its roots as a scientific and engineering agency within the U.S. government to become a vast bureaucracy that allowed safety standards to slip, and which permitted grievous errors to go unnoticed for years at a time. To paraphrase Mahan, NASA had become a “system” that allowed its bureaucratic nature to “pervert standards.”

History of Financial Disasters

Now that we have discussed a few examples of famous disasters, let’s take a look at the idea of “financial disaster.”

“What is a financial disaster? The phrase brings to mind images of panicked merchants huddled around an exchange waiting for the latest news to arrive via post, telegraph, or computer, of stock market crashes, of unemployment and charts showing a precipitate drop in the price of shares, indexes, or currencies.”

The foregoing comes from the introduction of a remarkable three-volume set of books entitled History of Financial Disasters 1763-1995, released in April 2006 by the London-based firm of Pickering & Chatto.

As the title implies, these three volumes review the origins and consequences of the Western world’s most important financial crises in the past quarter millennia. The editors have chosen to highlight and delve into 19 seminal economic crises between 1763-1995. Rare public and private papers, offering trenchant firsthand accounts from some of the principal insiders, offer rich source material and penetrating background on the events that occurred. In addition, the editors have culled the stacks of academic literature to assist the reader in interpreting these events and in drawing conclusions and lessons for our own time.

There are only a few people in the economic world that could have assembled this type on insightful collection. The general editor of this important historical review is Mark Duckenfield, an accomplished economist and historian at the London School of Economics. With the able assistance of co-editors Stefan Altorfer and Benedikt Koehler, also accomplished economic historians, Dr. Duckenfield has cast a broad net to gather what are among the best source materials that could be found in the world.

In general, the editors follow the definition of “financial crisis” established by the great analyst Charles Kindleberger. That is, financial crises are “associated with changed expectations that lead owners of wealth to try to shift quickly out of one type of asset into another, with resulting falls in prices of the first type of asset, and, frequently, bankruptcy.”

Alterations of Expectations

Thus, according to the editors, financial crises are a product of sudden alterations of expectations, rooted in reality or imagination. If you are looking for a way to avoid financial disaster, this is the key level of understanding. The impending alteration of people’s expectations sends a glaring signal to which you should train your mind to react.

In these three volumes, and for each of the financial crises that bears examination, the editors provide the reader with a look beyond the immediate crisis itself, and a view of the series of events that constituted the whole disaster. Here is the true value of this set of books.

The editorial approach is similar to the way that one might view the onshore wreckage caused by a hurricane, and from which natural disaster the recovery efforts can take years to come to fruition. In other words, the landside wreckage is only the most visible feature of a natural phenomenon that had its origins far out to sea. To avoid the impact of the storm, you should learn to forecast the weather. And then prepare yourself for the hit, if not just plain get out of the way.

Origins and Consequences

The editors use a broad conception of financial disasters that includes objectively describing the origins and resultant consequences of the phenomena. But the editors go many steps further as well by presenting information about how each disaster related to broader themes of the times. This includes providing the reader with fascinating information about the historical context, changes in the view of government intervention in the economy, the development of broad economic thought, the role of the media, and the openness (or what we now call “globalization”) of markets.

Each of the three volumes in this series looks at events in which sudden changes in market expectations led to either large-scale insolvency or an inability to pay. Of course, many events lead to changes in market expectations, and the editors provide examples to illustrate the points and put each event into its own context.

Large-scale changes could be triggered by the dawn of a realization that a government’s currency policies were highly inflationary. As an example, the editors review both the French Assignat inflation of the 1790s and German Weimar hyperinflation of the 1920s, and what followed when people came to realize that their currency was plummeting to worthlessness. Or people may begin to perceive that a government might have less political stability than had previously been thought, such as occurred with the Mexican peso crisis of 1994. On occasion, the financial meltdown begins not with overt monetary inflation, but with the pricking of a credit balloon and associated asset price bubble, such as the New York crashes of 1929 and 1987. Or there could be a herd mentality when investors respond to rumors and fears of insolvency, as with the collapse of the British entity of Overend & Gurney in 1867.

Often, a financial disaster is triggered through the confluence of several factors, rather than one defining cause. A combination of fraud, contraction of credit, shipwrecks, and a bumper year for agricultural output in Europe contributed to the Ohio Life Crisis of 1857. This financial disaster had its own broader effects on the U.S. economy, and helped to precipitate the U.S. Civil War.

Likewise, in 1931, German and Austrian banking failures undermined confidence in Britain’s financial institutions, while at the same time a minority Labour government in Britain proved unable to balance the budget through cuts in social benefits or indirect taxes. The efforts of the successor National government to do so triggered a near-mutiny in the Royal Navy that further spooked currency markets and forced Britain off the gold standard.

From the standpoint of an American reader, the history of the financial disasters in the U.S. during its formative, post-Colonial years offers great insight, particularly by way of comparison with current times. The editors do an excellent job of illustrating the circumstances of the Second Bank Crisis of the U.S. in 1818, as well as the devastating Panic of 1837. Each of these events had much to do with both the economic and political evolution of the U.S., to include pushing the nation down a path that sharpened sectional divisions and rivalries, eventually steering the nation toward its Civil War. (It is far too facile just to say that the U.S. Civil War was “all about slavery.”)

In addition, no one can consider himself or herself knowledgeable about the origins of modern monetary policy, and, in particular, the role of the U.S. Federal Reserve, without a solid grounding in the events of the Crisis of 1907. This section alone ought to be required reading for anyone who wants to understand the Fed and its origins, as well as its future direction as the U.S. dollar continues its century-long decline in value.

The Roots of Disaster

Every disaster has its proximate cause, the roots whence it grows. The Athenians lost a battle at Syracuse. The Titanic hit an iceberg. The O-rings of space shuttle Challenger became brittle in the cold. But as we discussed, there were deeper causes and origins, not to neglect the general human affliction of hubris.

In this same vein, History of Financial Disasters 1763-1995 is a treasure chest of historical perspective on the subject of economic and monetary disasters, and a valuable tool in your personal workbench of financial and historical knowledge. These books give you insight into the origins and consequences of financial disasters.

As I said at the beginning of this review, if your goal is to avoid something whose effects are not good, it certainly helps to know what that particular something looks like, and to understand its nature. Then at least you can get your money off the table and get yourself out of the way when it is headed in your direction. You could not do better than to read these three outstanding volumes and work to acquire the financial insight that might make all the difference in the world to you and to your family when the economic ship hits the next iceberg.

This Is a Limited Opportunity

“Limited opportunity?” Sure, you say. You hear that all the time. OK, suit yourself. But believe me. There is a limited number of copies of History of Financial Disasters 1763-1995 in print. This is a publishing opportunity, and it is not for everyone. If you have that certain hunger for knowledge, and the driving desire for financial success in the midst of some future disaster that may (no, will) come down the road, History of Financial Disasters 1763-1995 is your kind of reading. On the level of scarcity and value alone, purchasing this set is a unique opportunity.

The information in these volumes is priceless. If you attempted to do your own research on these topics, to develop the perspective that you will find in this publication, you would spend months combing the stacks of a very good university-level library. So if the publisher, Pickering & Chatto, was to set a figure of thousands of dollars on the content of the product, it could be worth every cent.

And ask yourself this “bottom-line” sort of question: What would these volumes be worth to you if they alerted you to the signals of the next financial disaster that will perhaps make the pages of “Vol. 4″ of this so-far three-volume set? Forewarned is forearmed. What is it worth to be just a few steps ahead of the crowd when the roof starts to cave in?

The publishers have set the price of these fine volumes at $395, or less than the daily fluctuation in value of a very modest brokerage account. And if the books are shipped to you within the U.S., that price includes the cost of shipping and handling.

Until we meet again…
Byron W. King

March 14, 2007

History of Financial Disasters 1763-1995 Book Review was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.