My Review of Liaquat Ahmed's "1873: The Rothschilds. the First Great Depression......"

A Good Deflation

Liaquat Ahmed of “The Lords of Finance” fame has written a new account of the long depression of the last quarter of the 19^th Century. To me, Ahmed mixes up depression with deflation. A depression signals a massive decline in aggregate output, which did not happen and a deflation signals a sustained decline in the price level, which did happen. I have covered some of the ground here in two prior reviews (See:  https://shulmaven.blogspot.com/2016/02/my-amazon-review-of-robert-j-gordons.html and https://shulmaven.blogspot.com/2017/09/my-amazon-review-of-richard-whites.html )

In the late 1860’s Europe witnessed a great railroad boom that was interrupted by the Franco-Prussian War of 1870. France was required to pay a huge indemnity to the newly united Germany. Instead of being a burden, it turned out to be a boon as the Rothschild banks, who are featured prominently in the book, fund the payment with two massive bond issues. Money came out of the woodwork from all over Europe to buy the bonds and that lead to a surge in economic activity leading to a boom in lending to eastern Europe and to Latin America. It all came unglued when the Vienna stock market crashed that rippled into Germany. Sixty years later a bank failure in Vienna would also deeply impact Germany, but to a far greater extent. In the U.S. the trigger was the collapse of the Jay Cooke & Co. banking operation that financed the Union during the Civil War and became undone with the failure of the Northern Pacific Railroad. 

 

According to Ahmed the crash was exacerbated by Europe moving away from a bi-metallic standard (gold and silver) towards a full gold standard. Similarly in the U.S., the Coinage Act of 1873, later known as “The Crime of 1873” limited the use of silver coinage. With the U.S. and Europe operating under the straitjacket of the gold standard, money in circulation declined and a deflation ensued. Indeed, in the U.S. both leaderships of the Republican and Democratic parties supported hard money

 

All of this was going on against the backdrop of improved global transportation which lowered shipping costs worldwide. For example, both the Suez Canal and the U.S. transcontinental railroad were completed in 1869. Later in the 1870’s and especially in the 1880’s there were huge advances in farm and industrial mechanization. Thus, if other things being equal, prices should have fallen and fall they did.

 

The wholesale price index fell from 140 in 1870 to 116 in 1878, a decline of 2.3% a year. Prices continued to fall and did not bottom until 1899 at an index level of 81. Thus, for the entire period prices declined at an annual rate of 1.9%. This price deflation obviously wreaked havoc for indebted farmers, triggering a populist revolt across the prairie. Their cause was to allow for unlimited silver coinage to expand the money supply and increase prices. Of course, the urban workers would have issues with this.

 

In Europe the political climate darkened with moves against free trade and the creation of the modern version of antisemitism partly tied to the Jewish Rothschild banking family. Indeed, the term “antisemitism” was coined in the Germany of the 1880’s. Further exacerbating the sour mood was the level of opulence of the bankers and industrialists of the gilded age.

 Although there were depressed conditions on the farm, industrial production boomed. There was only a modest decline in U.S. industrial production between 1873 and 1876, but by 1880 industrial output was one third higher than the decade before and it would double in the 1880’s. Industrial production was aided by the surge of immigrant workers flooding into the country from eastern and southern Europe. This explosive growth in industrial activity is the opposite of a depression. Further, in 1879 three major inventions would soon change the world: the incandescent light bulb, the telephone and the internal combustion engine.

 

By the end of the century gold discoveries in South Africa and Alaska eased the monetary pressure and prices started to increase. The deflation was over, but not before the hard money McKinley would defeat the soft money Bryan in the 1896 presidential election.

 

Although I come to a different conclusion than Ahmed, I do recommend his book. He brings insight into the popular feelings of the day, and you get a sense of the people and personalities of that era. 

My Amazon Review of Michael Beschloss' "Presdents of War"

Making War

Historian and media personality Michael Beschloss has written an important history of how and why presidents took us to war and of their wartime decision making process from Madison to Johnson. He is at is best in discussing the role of Lyndon Johnson during the Vietnam War. His “tick-tock” of how the Gulf of Tonkin resolution came to be is worth the price of the book. He is very clear that the Johnson administration was deceitful from Day One when they knew in their heart of hearts the war wasn’t winnable. Where I would fault him is that he does not lay enough of a predicate as to the role of John Kennedy in the lead up to the war. After all Johnson was continuing Kennedy’s very aggressive policy with respect to Vietnam.

Beschloss opens his book at the end of the Jefferson administration in 1807 and then fully discusses Madison’s role in the War of 1812. To me he is not critical enough of Madison and Jefferson. In my mind both were guilty of dereliction of duty in failing to maintain adequate naval strength while both Britain and France were raiding our ships and impressing our seaman. They both, having witnessed the Seven Years War that a generalized European conflict would sooner or later make its appearance in the Americas.  Although England was not directly threatening the U.S., Madison was egged on by the “war hawks” Henry Clay and John C. Calhoun to declare war. Be that as it may for the young trading nation that the U.S. was, the principle of freedom of the seas was worth going to war over.

He next is very critical of James K. Polk. To be sure Polk created an incident to trigger the Mexican War and lied to the American people about it, but to my mind Polk was the Bismarck of North America. Polk had the strategic vision that a war with Mexico would bring with it the entire southwest as well as California. He was fulfilling “manifest destiny,” a term that came into use during his administration. But before Polk could go to war with Mexico he had to settle up the Oregon dispute with Great Britain, which he did. Polk was smart enough to realize that U.S. could not fight a two front war against both Mexico and Britain.

Lincoln, of course, comes across as the great Civil War leader that he was. He does this not only by ultimate success on the battlefield, but by elevating the purpose of the war to give rise to “a new birth of freedom.” Unlike other presidents Lincoln was able to witness and agonize over battlefield casualties he was also able to be decisive.  Where I would be critical of Beschloss is that while the fighting was going on Lincoln pushed through Congress three great Hamiltonian projects, the Homestead Act, the Pacific Railway Act and the Morrill Act(land grant colleges), quite a domestic program. This distinguishes Lincoln from other presidents, where domestic engagements gave way to wartime exigencies.

Beschloss is kind to McKinley. After the sinking of the Maine (an accident) in Havana Harbor, he does not rush into war. However once engaged McKinley becomes an all-in imperialist by taking the Philippines, Guam and Puerto Rico. Intended or not with the Spanish American War the U.S. enter the world stage.

Beschloss likes Wilsonian policies, but he doesn’t seem to like Woodrow Wilson. He comes across as an arrogant intellectual and where Wilson demonstrated great political acumen in passing his domestic program, he is a complete disaster on the world stage. Wilson’s thought process on entering the war is a “theme park” (my words) for executive indecision. In his discussion of Wilson, Beschloss leaves out a lot. He ignores the role of the March Revolution in Russia that made it easier for Wilson to argue that he was “making the world safe for democracy.” He also ignores the challenge that Lenin brings with the November Revolution. Many historians believe that his 14 Points were a response to Lenin. He also only skims through the wave of domestic repression that took place during the war and immediately thereafter. And he ignores Wilson’s hidden agenda, which he accomplished, of orchestrating the transfer of economic power from London to New York.

Roosevelt, on the other hand learns from Wilson’s mistakes. Instead of trying to keep the U.S. out of the Second World War, he molds public opinion into acceptance of the inevitability of a war against fascism. He also brings the Republicans on board, both before and after, something Wilson refused to do. Roosevelt learned what not to do when he was an assistant secretary of the navy in the Wilson Administration. He also brings in the American people, with his fireside chats, into the vast theater of the global war.

Truman does not come off well. He doesn’t bring Congress into the process and that with hostile opposition from the likes of Taft and McCarthy leads to huge problems when the Korean War stalemates on the battlefield. After he rightfully fires General MacArthur his popularity plummets. It is a sad ending for someone who so clearly understood the Soviet menace in the late 1940s to see him so pilloried.

As I said at the outset Beschloss has written an important book, but as I noted he left out quite a bit and in many cases, especially with the earlier presidents he was way too detailed and the average lay reader will likely get bogged down in the weeds. Hence four stars, not five.

The full Amazon Review appears at the following URL: https://www.amazon.com/review/R107WQR5NDUEBL/ref=pe_1098610_137716200_cm_rv_eml_rv0_rv