1893

The financial crisis gripping Wall Street this week is fascinating because most Americans probably have no idea how serious the issue is.  Look outside, it's a beautiful autumn day with blue skies, warm winds, and green trees gradually coloring their leaves. Don't depressions happen in grainy black and white?

Financial crises to some degree are cyclical, not in the sense of a timely pattern, but in the sense of broadly common causes. The seasons of business are not regular, but the winters are always bitter.

When we gaze back to 1893, the year of Edna Parker's birth (who is the oldest living person in the world), we see the seeds of our modern world at the same time we see a world where the business seasons were much harsher and routine.

The "Panic of 1893" was the result of an economic expansion that became a speculative bubble. It was perhaps the most severe recession in America until the Great Depression. The rate of unemployment rose from 3 percent to at least 12 percent by 1894, and some accounts have it as high 18 percent. The Great Depression saw unemployment rise to 24.9 percent.

The 1880s had seen a period of remarkable economic expansion in the United States. In time, the expansion became driven by speculation, much like the "tech bubble" of the late 1990s, except that the preferred industry was railroads. Railroads were vastly over-built, and many companies tried to take over many others, seriously endangering their own stability so to do.... As concern of the state of the economy worsened, people rushed and caused bank runs. The credit crunch rippled through the economy.

Despite all this 1893 turmoil, baby Edna Parker was born in rural Indiana, the "Hoosier" state that was not yet known for its basketball or industrial prowess. The timing was all the more fascinating because, in fact, the game of basketball had just been invented, and the first college basketball game was played in the spring of 1893. What else was started that year?

• January 13 - The Independent Labour Party of the UK has its first meeting.
• February 1 - Thomas A. Edison finishes construction of the first motion picture studio.
• February 23 - Rudolf Diesel receives a patent for the diesel engine.
• July 11 - Kokichi Mikimoto, in Japan, develops the method to seed and grow cultured pearls.
• September 19 - New Zealand becomes the first country to grant women the right to vote.

So, there you have the seeds two new political forces: women and labor. You also have the seeds of the two main branches of the entertainment industry: motion pictures and sports, as well as the seeds of a luxury jewelry sector in peals. And you have the diesel engine.  All in the simple year of 1893.

Do you think anyone will wear pearls tonight, drive their diesel car to a movie theater, and talk about voting for Sarah Palin?  Or do you think they will just stay home and worry about the credit crisis of 2008? 

Comments

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Tim: As I wrote on my blog, Truth on the Market, I think Tyler is pretty far off base with this one. See http://www.truthonthemarket.com/2009/04/28/what-does-tyler-know-about-law-and-economics-anyway/

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