Echoes Dispatches From Economic History

In late August 1932, George Foster Peabody, a major figure in railway and electric-power development, wrote a letter to the New York Times, criticizing President Herbert Hoover's response to the Great Depression. Peabody’s conclusion was stark: “I am thus thoroughly convinced that Mr. Hoover is incompetent.”

Meanwhile, support for New York Governor Franklin D. Roosevelt, the Democratic presidential candidate, was growing. The Economist wrote: “Mr. Roosevelt has plunged boldly into the trenches and is arousing enthusiasm by the energy of his personal raids on the enemy's lines.”

Free Exchange on a golden age of microeconomics
Economix on long-term challenges in the U.S. labor market
The Federal Reserve Board on the fight over the McFadden Act of 1927
The Federal Reserve Board on the U.S. farm-land price boom (and bust) in the 1920s
The Economist on the wrong lessons learned from Black Monday 
American History Now on Thomas Jefferson as the patron saint of the self-made farmer
The New York Times on the 1944 Bretton Woods conference transcript

Read more from Echoes, Bloomberg View's economic history blog.

Coal miners lining up behind the Republican presidential nominee, Mitt Romney; auto workers praising President Barack Obama for saving the U.S. car industry. You don’t have to look far to see signs of Americans’ deep anxiety over deindustrialization, and of a profound nostalgia for a more toilsome past.

Yet a closer look at bygone days shows that the decline of U.S. industry isn’t only the result of unfair Chinese trade practices or the low wages of Asian workers.

Advertisements touting for-profit universities are everywhere. Schools such as Apollo Group Inc. (APOL)’s University of Phoenix peddle instruction in person and online, promising that students can earn their degrees on their own time, in their own homes -- even in their pajamas.

The growth of such institutions has sparked controversy, partly because of their reliance on federal financial aid and the high default rates of their students.

The U.S. is quickly approaching a “fiscal cliff,” a combination of scheduled tax increases and automatic spending cuts that could seriously disrupt the economy. It’s a grim situation, but not an unprecedented one.

The country has tottered on the edge of a similar budgetary precipice before -- and barely averted a national calamity.

During the sharp recession of 1921- 1922, Thomas Edison turned from making innovative consumer products to reinventing the U.S. monetary system.

He was driven to economics by a sincere desire to be useful in a crisis and by his friend Henry Ford. Ford had proposed that the federal government issue paper dollars -- effectively zero- interest bonds -- to finance the completion of the Wilson Dam on the Tennessee River, which he would then buy from the government. Ford took Edison to the dam site, and Edison was impressed with the proposal.

In June 1931, with the U.S. economy in a depression and leaf tobacco prices at 20-year lows, R.J. Reynolds Tobacco Co. decided to increase the price of Camel cigarettes.

This proved a truly bad idea. And the response of consumers and competitors offers a telling example of how the Great Depression was upending industry after industry. Increasing the price of a pack of 20 cigarettes to 15 cents from 14 cents launched a price war that undermined Big Tobacco's hold on a shrinking market.

History News Network on why a business background doesn't guarantee a successful president
Paul Krugman on the balancing budget mistake of 1937
The Winthrop Group on a historical perspective on the global financial crisis
The Big Picture on 10 key trends changing investment management
Bloomberg News on the 25th anniversary of Black Monday
Economist's View on the evolution of U.S. unions

Read more from Echoes, Bloomberg View's economic history blog.

In 2012, it isn’t unusual to go days without using actual money: Lunch goes on the debit card, a clothing purchase goes on the credit card and in some cities even parking meters take plastic. As the Internet and instruments of credit continue to transform our relationship with money, it is worth reflecting on the forms that money has taken in the past.

Before the institution of federally backed paper currency in 1862, the government didn’t see issuing paper money as its responsibility. Although it coined gold and silver, there was never enough in circulation to provide an effective medium of exchange. Because the Constitution prohibited states from printing money, banks became the primary suppliers of paper money in the U.S.

Americans across the political spectrum who object to intimate links between government and high finance have often upheld James Madison as their champion.

Conservatives who condemn the Federal Reserve, trade regulations and the tax code for strangling markets and restricting freedom often cite Madison as a founding libertarian. Liberals criticizing connections between government and the investing class for concentrating wealth into an ever smaller segment of society look to Madison as a defender of more democratic approaches.

During the panic of 1792, the Bank of North America tried to stave off a run by having employees “carry its specie busily to and from the cellar in order to give a magnified notion of what it had,” historian Bray Hammond wrote. Bank managers “ostentatiously brought in deposits of gold and silver that had unostentatiously been carried out a little while before.”

The show of specie reassured jittery customers, saving the bank from failure. As a young clerk in Iowa during the panic of 1907, Hammond recalled employing exactly the same dodge: heaping impressively large sacks of low-value coin in plain view and ostentatiously counting it to give the impression of overflowing vaults.

The U.S. construction industry boomed through most of the 1920s as new office buildings, factories, warehouses and homes were built across the country.

A developing securities market, in which commercial bonds could be sold to finance construction, helped boost the housing surge. In 1928, however, the Federal Reserve tightened monetary policy to stem speculation, especially in the stock market, and housing investment began to fall.

The past few months have seen some good news for Amtrak. In July, the nation’s passenger-rail service announced a record monthly ridership of 2.78 million trips. In fiscal year 2012, more than 31.2 million passengers rode the rails, also a record.

Unfortunately, any excitement over these developments has to be tempered by economic reality. The National Railroad Passenger Corp., the for-profit company that runs Amtrak, is always in the red. Only operating subsidies from Congress keep Amtrak running -- to the tune of about $466 million this year. Subsidies are down by more than $250 million since 2004, and Republican presidential candidate Mitt Romney has targeted the Amtrak funds for one of his budget cuts.

Naked Capitalism on the evolution of money and debt
Business Insider on how 30 years of black middle-class economic gains were wiped out
The World Bank on a global database of economic characteristics for countries from 1960 to 2010
Center for Economic History on risk management in London from 1690-1730
Economix on how baby boomers are affecting economic recovery

Read more from Echoes, Bloomberg View's economic history blog.

In the 1930s, Fortune magazine called weddings a “depression-proof” business; these days, the term is “recession resistant.” That isn’t exactly true, but there’s no denying that the U.S. wedding industry is big business today: Even in a sluggish economy, the average cost of a wedding in 2011 was $26,501, according to a Brides magazine survey.

Much of the debt incurred by marriage-bound couples and their families stems directly from a desire to follow tradition -- to purchase the goods and services necessary for a “proper” wedding. But many of these traditions are actually relatively new: They were invented by businesses using shrewd advertising campaigns, promotions and consumer “education” programs.

In this election, political action committees and so-called super-PACs have come to play an outsized role in campaign finance. These organizations are nothing new, but they have come a long way from their origins -- particularly when it comes to their scale and electoral goals.

The first organization to call itself a political action committee was formed in July 1943 by the Congress of Industrial Organizations, and it was done to re-elect a Democratic president and friends of labor.

The Great Depression deepened an ongoing Brazilian political crisis that had intensified during the 1920s and resulted in a military coup and the rise to power of Getulio Vargas in 1930. Civil war broke out in 1932 as Constitutionalists from Sao Paulo rejected Vargas's provisional government.

Although ultimately unsuccessful, the rebellion against Vargas would mark a moment of transition for Brazil, and offer a grim preview of how economic shocks would shake political structures across the world in the years to come.

Economist's View on the economies of ancient Greece and China
Bank of Japan on independent central banking
Naked Capitalism on the world's worst central banker
Marginal Revolution on austerity in the U.K. in the 1920s
American Historical Association on the Oct. 3 presidential debate

Read more from Echoes, Bloomberg View's economic history blog.

The London interbank offered rate -- which is set daily by asking banks what they would charge to lend to other banks -- has formally existed since the 1970s, when the acronym Libor was first coined.

As a concept, however, it goes all the way back to 1797. It was known as “the bank rate,” and it referred to the one that the Bank of England would charge for an emergency loan. In effect, this rate became a barometer of market conditions, measuring the anxiety of borrowers and lenders alike.

Recent changes in campaign-finance laws, prompted by the Supreme Court’s decision in the Citizens United case of 2010, have some people worried that corporations can now legally buy a presidential election.

Of course, directly paying citizens to vote for a certain candidate seems unlikely. Ballots are secret and can’t easily be traded, and voting contracts couldn’t be monitored for compliance, much less enforced in court. Under certain conditions, however, companies can almost buy votes outright -- and it has happened before.