Economic Icons The Boomers Broke

shallow focus photography of U.S. dollar banknotes

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Helen Andrews’ book “Boomers” is a beautifully written indictment of the Boomer generation, similar to Lytton Strachey’s “Eminent Victorians,” by a Millennial social conservative who believes the Boomers broke U.S. social mores. On the economic side, it is also clear that somebody destroyed sound economic thinking but much less clear who did it – Maynard Keynes, after all, was not a Boomer.

Two hundred years ago, sound economic principles were understood by very few people indeed, but those people were running both Britain and the United States. Britain was on a Gold Standard, had balanced its budget despite gigantic levels of debt, far higher than today’s, and was a rock-solid believer in private property and the rights of savers to a decent real return on their money. The result was the Industrial Revolution.

That economic policy stance was not ordained by religious or cultural beliefs; it had been arrived at by several centuries of intellectual effort, and much policy trial and error. In the 1690s, for example, when the problem arose of creating a debt market to finance Britain’s newly bloated war expenditures, policymakers had been seduced by greedy money men into doing so by creating a succession of gigantic shell companies, which lent to the government and issued shares to finance their loans. The effect of this was to enrich exorbitantly the financiers involved and approximately double the cost of public debt – all at the expense of suffering taxpayers. Naturally, Tory squires railed against the wealth and corruption of the “monied interest.” They were right.

Moderns who examined the hyper-complex financial scams on Wall Street prior to the crash of 2008 will recognize this technique. However, the South Sea crash of 1720 and the invention of Consols in 1751 put an end to the scams, and Adam Smith taught subsequent policymakers better approaches to economic problems.

In the United States, Alexander Hamilton had learned from Adam Smith the dangers of a chaotic money market, so his program of assumption of state debts after 1791 put U.S. finances on a thoroughly sound basis. The Bank of the United States, and its successor the Second Bank, were not necessary as central banks – they did not set interest rates, for example – but were helpful to the financial system in a very large country with too little specie (gold and silver) and too few banks that were well-known and trusted across the nation. Only with Andrew Jackson did populism infect U.S. economic thinking and the country begin to go astray.

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