Second, I had learnd that part of the problems here were from British creditors recalling money invested in things like railroads as the European situation tighened.

Third, the financier Jay Gould’s “run” on the U.S. gold market was exposed in 1873, triggering waht was known as a “panic” here; that, combined with the deflationary aspects of return to a “civilian” economy, tightened credit here.

There is indeed a very important similarity with the current economic crisis and the one in 1929. Whatever was the original source of the economic problems back than, what deepened the crisis and made it the worst in the global economy until than was the failure of the ‘financial intermediary system’.

To put it very simply: whatever saved money was left in the economy or in the banks, due to the heavy losses in both the producing sector and the banks it was not credited to companies. Firms that were in the loss but would have needed only short-term credit to maintain their activities suddenly for short of cash and got not pay investment on long-term credit. The general mistrust among banks made the allocation of the few money available slow or impossible.

This is very similar to the present crisis. Altough the losses on the misunderstood risks of the subprime mortgages should make only a few banks fail, the real economy is hit by a shortage of cash and short-term credit. The efforts of governments to maintain liquidity on the market and to save major credit institutions is essential to save the real economy.

Doug: The book is over a hondred years old, you can only see a few chapters and I haven’t been doing macro economics for years so I’m not going to debate the issue

But I thought the burden of the American Civil War was rather unevenly spread (much more hardship for the South, much more industrial expansion in the North). And hey, I’m Dutch… our tulipmania took place in the middle of our 80 year independence war with Spain

More investment, more production less consumption.
I bet a standard of living 30 % lower for USA in the next ten years. Something like Soviet Union.

– But I’m not sure that’s true. Remember, 1870s America was still cleaning up after the Civil War. Over $2 billion in debt — back when that was real money; in an 1870s context, it was around 25% of GDP — and a pension system that would eventually absorb nearly half of all government revenue.

Not as bad as keeping a million-man standing army, but nontrivial.

Doug M.

Funnily enough it starts by emphasizing that the Americans are able to ‘invade’ because they do not carry the heavy military burden the European countries have…