If you need more recent history, Argentina went through an economic collapse only a decade ago. And, of course, the Soviet Union famously went through a political collapse, as chronicled so well in Dmitry Orlov's work. That collapse triggered a Peak Oil rehearsal in Cuba. As I already noted on this blog, Japan has already spent twenty years with minimal growth. History is important. Yes, there are differences in time, and differences in culture that can not and should not be minimized or ignored. We need to think hard about what's coming. But let's get real. The United States did not collapse during the Depression, in fact, few countries did. Yes there were horrible consequences (such as the rise of Fascism), but history went on. The Soviet Union may be no more, but the Russian people are still there. Argentina is still there. Iceland is still there. Let's get real, people. We can get through this. Unfortunately, it's not going to be pretty.
So with that out of the way, let's take a look at some historical links. Here's a BBC News article on what people went through during Argentina's economic crisis:
Argentina defaulted on a debt of US$132bn (£82bn; 93bn euros). The peso, which had been strictly tied to the US dollar, lost two-thirds of its value overnight, and the banks refused to let investors withdraw their own money. There were daily protests, often violent, with demonstrators bashing pots and pans in what became known as the cacerolazo. Five presidents came and went within a few weeks. Tens of thousands of businesses closed, unemployment rocketed, huge numbers of people fell below the poverty line while anyone who could get their money, and often themselves, out of the country, did so.There were all sorts of coping mechanisms:
Monica Gugliemini, who worked in the financial sector in Buenos Aires at the time, said she remembered months of great uncertainty. "No-one knew what was happening or what was going to happen," she said. "I remember the silence on the streets when the government announced its new economic measures. No-one knew what to do. Then there was pandemonium."
Marcela Ricca lives in a small agricultural town west of Buenos Aires which is now reaping the financial benefits of the boom in soya production. But 10 years ago, she says, many people only survived thanks to government work programmes and by setting up their own networks of barter, known as Redes de Trueque.Now ten years on, the BBC takes a look at how people were affected:
"You'd offer whatever you had," remembers Marcela. "You might repair a washing machine and get six eggs for it. Or do somebody's accounts and they'd fix your car."
The scheme engendered great solidarity and only fell apart when the political parties hijacked it, Marcela says. She also remembers the proliferation of alternative currencies in circulation. The devaluation of the peso meant there were not enough bank notes to meet demand so some provincial governments printed their own. The most widespread was the Patacon which was printed by the Buenos Aires provincial government. Retailers would post signs on their shop windows advising shoppers which currencies they accepted.
Employees would arrive at work to find the gates padlocked and that the owners had fled, often stripping the workplace of anything they could sell. With no alternative, some took control of the premises and set up workers' co-operatives, many of which survive and flourish today. The most high profile is the Bauen hotel in the heart of downtown Buenos Aires. The workers hold regular meetings, the management rotates and the chambermaids and waiters all have an equal say in the running of the business. There are also glass and confectionary producers, shoemakers, balloon manufacturers and more. They work with one another in a framework forged during their formative years but now operate, some more successfully than others, within the more traditional, capitalist system. The Bauen hotel, for instance, is in a constant legal battle with the original owners who fled when times were tough but now want to recuperate a prime site in the heart of the bustling city.
Journalist Carina Etchegaray will never forget 3 December, 2001. She and her family were buying a flat in the Argentine capital, Buenos Aires. Within hours, her hopes of being a property owner had vanished into thin air.Faced with a mounting economic crisis, the government had announced a new decree to limit bank withdrawals or transfers to the equivalent of $250 (£160) a week.
The aim was to stop a run on the banks.
At a stroke, Ms Etchegaray and millions of her fellow citizens were unable to access all their savings.Long queues formed at banks across Argentina as people tried to get hold of their money. Soon frustration turned to anger.
"It was something we had never seen before. You did not know what to do or where to go to ask for your savings, because all the banks were closed," says Ms Etchegaray. "You would knock on their doors and nobody answered."
The decree, known as the "corralito" or "ring fence", sparked such unrest that the elected government fell, and many feared for the survival of the political institutions. Riots started in the main cities and there was widespread looting. A state of emergency was declared, but it only made things worse. By 20 December, some 40 people had died in clashes with the police.In an earlier post I referenced Joe Nocera's take on Since Yesterday, a popular history of the 1930's. Here's Robert Teitelman's take (it's a little different).
"Coming up to this 10th anniversary, I've been thinking about those moments of tension, uncertainty and sadness," says Ms Etchegaray. You had to get on with life, she says, but it was a very anxious time. When you went to buy food for your children, it was common to find that the supermarket had been looted. Many people were affected, like those who were evicted from their homes as they were unable to pay their mortgage."
When Ms Etchegaray invested her money in the bank, the Argentine peso had been pegged to the US dollar for about a decade. But the upheaval of December 2001, which saw the country go through five leaders, put an end to that. In January 2002, the caretaker government of Eduardo Duhalde allowed the currency to float freely in the market, causing a sharp devaluation. Amid the crisis, Argentina also defaulted on debts of $141bn. Inflation soared to more than 40% by the end of 2002. So when people were allowed full access to their bank accounts in 2003, the money in them was worth far less.
"I had recently received a lump sum in cash which we were going to use to buy a flat. But the money was frozen in the bank and when I eventually got it back it was just enough to buy a car," Ms Etchegaray says. "It was our chance to have a new life for our children. And in minutes, because of political decisions, we lost that opportunity."
Robert Reich serves up a history lesson about where many of the ideas of today's plutocrats come from. The only question is how they got the majority of Americans to believe it (or at least vote as if they do):
It was an era when the nation was mesmerized by the doctrine of free enterprise, but few Americans actually enjoyed much freedom. Robber barons like the financier Jay Gould, the railroad magnate Cornelius Vanderbilt, and the oil tycoon John D. Rockefeller, controlled much of American industry; the gap between rich and poor had turned into a chasm; urban slums festered; children worked long hours in factories; women couldn’t vote and black Americans were subject to Jim Crow; and the lackeys of rich literally deposited sacks of money on desks of pliant legislators.For a longer-term prespective on economic history, David Graeber's Debt: The First 5,000 Years is a must-read. There is a great post about the book here:
Most tellingly, it was a time when the ideas of William Graham Sumner, a professor of political and social science at Yale, dominated American social thought. Sumner brought Charles Darwin to America and twisted him into a theory to fit the times.
Few Americans living today have read any of Sumner’s writings but they had an electrifying effect on America during the last three decades of the 19th century.
To Sumner and his followers, life was a competitive struggle in which only the fittest could survive – and through this struggle societies became stronger over time. A correlate of this principle was that government should do little or nothing to help those in need because that would interfere with natural selection.
Listen to today’s Republican debates and you hear a continuous regurgitation of Sumner. “Civilization has a simple choice,” Sumner wrote in the 1880s. It’s either “liberty, inequality, survival of the fittest,” or “not-liberty, equality, survival of the unfittest. The former carries society forward and favors all its best members; the latter carries society downwards and favors all its worst members.”
Newt Gingrich not only echoes Sumner’s thoughts but mimics Sumner’s reputed arrogance. Gingrich says we must reward “entrepreneurs” (by which he means anyone who has made a pile of money) and warns us not to “coddle” people in need. He calls laws against child labor “truly stupid,” and says poor kids should serve as janitors in their schools. He opposes extending unemployment insurance because, he says, ”I’m opposed to giving people money for doing nothing.”
Sumner, likewise, warned against handouts to people he termed “negligent, shiftless, inefficient, silly, and imprudent.”
Mitt Romney doesn’t want the government to do much of anything about unemployment. And he’s dead set against raising taxes on millionaires, relying on the standard Republican rationale millionaires create jobs.
Here’s Sumner, more than a century ago: “Millionaires are the product of natural selection, acting on the whole body of men to pick out those who can meet the requirement of certain work to be done… It is because they are thus selected that wealth aggregates under their hands – both their own and that intrusted to them … They may fairly be regarded as the naturally selected agents of society.” Although they live in luxury, “the bargain is a good one for society.”
One line of thought is perfectly clear in the book: Graeber wants to demolish the myth of the truck-and-barter origins of money. This is the standard story within classical and neoclassical economics. But Graeber thinks it is a complete fiction. He regards this as a just-so story that doesn't make any sense ethnographically, and has never been observed in real pre-state societies.Michael Hudson, who has also written extensively on the history of debt and debt fogiveness in earlier societies, offers up this history lesson (long, but worth it):
One of Graeber's recurring themes is that money and debt are reciprocals of each other. He tells many stories about IOU's being passed around within a community: John promises to give X to Alice; Alice passes on the IOU to Robbie in exchange for a beer; Robbie takes the IOU to the nail shop and exchanges it for a pound of nails from Bert; and Bert eventually comes back to John to redeem the IOU. In this circuit, the statement of debt serves as a basis for folk currency within a local society. But Graeber argues that the establishment of Bank of England resulted in bank notes that were no more or less than IOU's from the state (49).
Another theme that comes into the book is the close connection that Graeber draws between money and currency, and violence and war. He argues that trust and extended credit arrangements work very well during periods of peace; whereas a period of extended warfare puts a premium on the portability and anonymity of precious metals. So warfare pushes societies (and monarchs) towards the use of currency made out of precious metals. He goes further: monarchs needed to pay their armies, in Europe, central Asia, and East Asia; and precious metals (coins) work best for the heavily armed and footloose soldiers who made up those armies.
An intriguing, and somewhat perplexing, part of Graeber's analysis is his effort to link the value systems of Eurasia's great civilizations to the social creation of money, credit, and debt. A central thrust here is his analysis of the "Axial Age" -- the period from 800 bc to 600 ad when there was great creativity in the emergence of new spiritual leaders and movements. There was, simultaneously, extensive warfare; and there was the simultaneous invention of currency in several widely separated places. He illustrates this nexus with the case of China:
The golden age of Chinese philosophy was the period of chaos that preceded unification [during the Warring States period], and this followed the typical Axial Age pattern: the same fractured political landscape, the same rise of trained, professional armies and the creation of coined money largely in order to pay them. We also see the same government policies designed to encourage the development of markets, chattel slavery on a scale not seen before or since in Chinese history, the appearance of itinerant philosophers and religious visionaries, battling intellectual schools, and eventually, attempts by political leaders to transform the new philosophies into religions of state. (235)
Book V of Aristotle’s Politics describes the eternal transition of oligarchies making themselves into hereditary aristocracies – which end up being overthrown by tyrants or develop internal rivalries as some families decide to “take the multitude into their camp” and usher in democracy, within which an oligarchy emerges once again, followed by aristocracy, democracy, and so on throughout history.Finally, Bloomberg News has a blog about economic history. Here's a sample from one post about the Greenback Party:
Debt has been the main dynamic driving these shifts – always with new twists and turns. It polarizes wealth to create a creditor class, whose oligarchic rule is ended as new leaders (“tyrants” to Aristotle) win popular support by cancelling the debts and redistributing property or taking its usufruct for the state.
Since the Renaissance, however, bankers have shifted their political support to democracies. This did not reflect egalitarian or liberal political convictions as such, but rather a desire for better security for their loans. As James Steuart explained in 1767, royal borrowings remained private affairs rather than truly public debts. For a sovereign’s debts to become binding upon the entire nation, elected representatives had to enact the taxes to pay their interest charges.
By giving taxpayers this voice in government, the Dutch and British democracies provided creditors with much safer claims for payment than did kings and princes whose debts died with them. But the recent debt protests from Iceland to Greece and Spain suggest that creditors are shifting their support away from democracies. They are demanding fiscal austerity and even privatization sell-offs.
This is turning international finance into a new mode of warfare. Its objective is the same as military conquest in times past: to appropriate land and mineral resources, communal infrastructure and extract tribute. In response, democracies are demanding referendums over whether to pay creditors by selling off the public domain and raising taxes to impose unemployment, falling wages and economic depression. The alternative is to write down debts or even annul them, and to re-assert regulatory control over the financial sector.
Like so much in late 19th-century America, the Greenback Party was a product of the Civil War. The extraordinary cost of the conflict had forced the U.S. to abandon the gold standard. The country printed $450 million in fiat money during the war -- called greenbacks after the color of the ink used in the bills.
As fiat money always does, the greenbacks caused inflation, which historians estimate had accelerated by about 75 percent by the end of hostilities. The South, unable to borrow as easily as the North could, was forced to rely on its own fiat money to a far greater extent to finance the war. The result was vastly worse inflation, which wrecked the Southern economy.
It's hard to imagine today, but after the war, the gold standard became the cause of more than a few barroom brawls -- and a deep national political divide. The Northeast and parts of the Midwest -- the most developed regions of the country with the largest banks and the greatest interest in foreign trade -- strongly favored the gold standard, as creditors always did, because it made inflation almost impossible.
But the South, crippled by the war and with few banks and many poor farmers, wanted no part of it. Debtors -- and farmers were chronically in debt -- typically prefer inflation, which allows them to pay back what they owe with cheaper money. Westerners, who had seen several major silver strikes in recent years, including the great Comstock Lode, wanted no part of the gold standard, either. They preferred the free coinage of silver, guaranteeing a market for the metal.
In 1873, pushed by industrial and financial forces from the North and Midwest, Congress passed the Coinage Act, which much of the rest of the country called the "Crime of '73." It ended the coinage of silver, requiring the Treasury to mint only gold coins. Paper money, under the National Banking Act of 1863 (as amended in 1864), could be issued only by national banks, with a uniform design, and backed 100 percent by Treasury bonds. The Resumption Act of 1875 required the Treasury to redeem greenbacks for specie (such as gold or silver) beginning Jan. 1, 1879. The result of this was the effective return of the country to the gold standard.
In September 1873, panic hit Wall Street and banks and brokerage houses failed by the dozen. The country entered a period of deep depression that would not lift until the end of the decade.