Early American progressives like Jefferson and Thomas Paine believed that the best government governed least. This feeling among Progressives changed during the industrial revolution, as big corporations and trusts amassed huge wealth and power over the government and the lives of ordinary Americans. While conservatives continued to see government in much the same way that Jefferson and Paine did in the 1700s, Progressives began to see the large corporations and the unregulated free market capitalism as more of a threat to individual liberties than government. I've been reading progressive magazines and websites for a while now, and I've noticed how today's progressives view the large corporation in the same way as conservatives and tea party activists view government.

I don't believe government is perfect. But neither is the market economy. I believe government is necessary to counter the worst flaws of a capitalist system. I read once in a book that the New Deal philosophy was that the federal government has an obligation to help its most vulnerable citizens weather the worst aspects of a market economy, and it's something I agree with. Left to themselves, many of the working class and poor are unable to deal the larger forces that the capitalist system unleashes.

The recession that we are having right now is not an anomaly in the history of our market system. In the course of this country's history, the United States has had periods of serious economic crisis in 1837, 1857, 1873, 1893, 1907, 1919, 1929 and now today. These economic crisis are inherent in the market economy and are the result of rampant overspeculation and always do great harm to the poor and working class. I went to search in the web to learn more about these economic crisis and I checked out the book American Economic History: A Comprehensive Revision of the Earlier Work by Harold Underwood Faulkner to see the similarities between those crisis and the economic crisis today. I also checked up Howard Zinn's A People's History of the United States: 1492 to Present to go beyond the numbers and see the human cost of the market downturns. As Congress debates on a strong financial reform bill, I hope to learn a bit of the history of past economic downturns.

The Panic of 1837 occurred as a result of overspeculation that resulted in a 5 year depression and a high number of unemployment. Land speculation was rampant due to the expansion of the country westward and banks made extensive credits to fuel the building of roads, canals and new cities. The roads, canals and new cities and towns turned out not to have been as profitable as speculators hoped. President Andrew Jackson had refused to recharter the second Bank of the United States, and issued a Specie Circular, which meant that government land could only paid by gold and silver. This devaluation of paper currency was meant to curb excessive land speculation after the removal of Native Americans, but it lead to rising inflation and prices. The land speculation was fueled by speculators using paper money provided by state banks that were not backed by hard money. Adding fuel to the fire, a crop failure in 1835 prevented farmers from meeting their obligations to the land speculators and banks. In 1836, the failure of many English mercantile houses meant the decline for demand of American cotton. All of these events lead to the panic in 1837.

A website dedicated to the history of America gives some indication of the effects of the overspeculation and the weakening of the paper currency. This website wrote of the financial havoc:

"To check these operations a "specie circular" was issued by the Secretary of the Treasury, which required payment for government lands to be made in gold and silver after August 15, 1836. The effect of this series of executive actions, and of the fever of speculation which existed, was disastrous. The species which was expected to flow into the treasury in payment for public lands failed to appear. The banks refused discount and called in their loans. Property was everywhere sacrificed, and prices generally declined. Then, like an avalanche suddenly talling upon the land, came the business crash and panic of 1837, which caused the financial ruin of thousands. During the first three weeks of April two hundred and fifty business houses failed in New York. Within two months the failures in that city alone aggregated nearly one hundred millions of dollars. Throughout the whole country the mercantile interests went down with a general crash, involving the mechanic, the farmer even the humblest laborer, in the ruinous consequences of the disaster. Bankruptcy everywhere prevailed, forced sacrifice for valuable merchandise was the order of the day, on less than eight of the States partially or wholly failed, even the general government could not pay its debts, trade stood still, business confidence vanished, and ruin stalked unchecked over the land.

The panic of 1837 was not due solely to the causes above enumerated. Many influences converged to produce this result, and to give rise to the fever of speculation which was its immediate predecessor. As one of its results the banking system of the country suffered a general collapse. Out of eight hundred and fifty banks, three hundred and forty-three closed entirely, sixty-two failed partially ,and the system of State banks received a shock from which it never fully recovered."

Faulkner's book notes that bank note circulation contracted from $149,000,000 in 1937 to $58,000,000 in 1843, and the sale of public land fell from $20,000,000 in 1836 to $1,000,000 in 1841. In 1841, Congress passed a special bankruptcy law under which 39,000 people canceled $441,000,000 worth of debt. Zinn notes in his People's History that working people saw the prices of flour go up from $5.62 a barrel to $12 a barrel, which caused the Flour Riot of 1837 in New York City. The price of pork and coal rose beyond their means. During that year, 50,000 people were jobless in New York and 200,000 out of a population of 500,000 were living in distress. There were many rallies and strikes of laborers, factory workers, bookbinders, jewelers, coal heavers, butchers, and cabinet makers for the ten hour work day.

The Panic of 1857 resulted from overspeculation in the railroads, and an overly optimistic assumption in the short term expansion of towns and mineral resources. The failure of the Ohio Life Insurance and Trust Company in August 1857 started the panic. Railroads failed and many people lost confidence in the government's ability to pay obligation in species. More than 5,000 American businesses failed within a year, and unemployment was accompanied by protest meetings in urban areas. From 1852 to 1857, the stock market declined by 66% compared with inflation. Eventually the panic and depression spread to Europe, South America and the Far East.

A People's History notes that the Panic of 1857 lead to 200,000 unemployed. There were several rallies and strikes, including a rally of fifteen thousand unemployed people that marched through Wall Street demanding work. In November 1857, a crowd occuppied New York's City Hall demanding bread and work and had to be driven out by the U.S. marines.

The Panic of 1873 was the result of another overspeculation in the railroad industry, where 30,000 miles of railroads were built between 1867 and 1873, with only small immediate returns to be expected. According to wikipedia, the railroad industry was the nation's largest employer outside of agriculture, and it involved large amounts of money and risk. A large infusion of cash from speculators caused abnormal growth in the industry as well as overbuilding of docks, factories and ancillary facilities. The failure, in September 1873 of the country's leading brokerage firm, Jay Cooke and Company, lead to the failure of several banks, and the temporary closing of the New York Stock Exchange for ten days. Of the country's 364 railroads, 89 went bankrupt. The Panic of 1873 led to the Long Depression, where the economy contracted for 65 months. A total of 18,000 businesses failed between 1873 and 1875. Unemployment reached 14% by 1876. Construction work lagged, wages were cut, real estate values fell and corporate profits vanished.

A People's History notes that many people roamed the cities searching for food. Mass meetings and demonstrations tood place all over the country, in textile mills, railroads and coal mines. The unemployed created councils. Immigrants were used to replace striking workers and break strikes.

The Panic of 1893 was, like the Panic of 1873, a result in overspeculation in railroad overbuilding and shaky railroad financing which set off a series of bank failures. A run on the supply of gold worsened the crisis, as the U.S. backed its currency with both gold and silver. Many mines were opened and silver began to flood the market. Farmers, particularly in the Midwest, suffered a series of droughts which left them short of cash to pay their debts, which drove down the value of their land. The Free Silver movement arose, gaining support from farmers (who sought to invigorate the economy and cause inflation, thus allowing them to repay their debt with cheaper dollars) and mining interests (who sought the right to turn silver directly into money). The Sherman Silver Purchase Act of 1890 required the U.S. government to buy millions of ounces of silver which drove up the price of the metal. The bankruptcy of the Philadelphia and Reading Railroad, which had greatly over-extended itself, on February 23, 1893, is considered by many historians to be the start of the Panic of 1893.

A series of bank failures followed, and the price of silver fell. The Northern Pacific Railway, the Union Pacific Railroad and the Atchison, Topeka & Santa Fe Railroad failed. Over 15,000 companies and 500 banks failed. The production of iron and coal declined, and there was a poor corn crop in 1894. A decrease in demand for wheat in Europe devastated American farmers. Around 17% to 19% of the workforce was unemployed at the Panic's peak. The high numbers of unemployment, combined with the loss of life savings by failed banks, meant that many of the middle-class could not meet their mortgage obligations.

Zinn wrote about demonstrations of hungry and unemployed people all over the country forcingcity governments to set up soup kitchens and give work to people for parks and streets. In Chicago, more that 200,000 people were without work, and the stairs of City Hall and the police stations were filled every night with homeless men trying to find places to sleep. In 1894 workers at the Pullman Palace Car company went on strike for better pay and safer work conditions, as the railroad work was one of the most dangerous jobs in America with over two thousand railroad workers killed each year. Coxey's Army was a march of unemployed laborers from Ohio and Pennsylvania to Washington to demand relief. The Bituminous Coal Miners' Strike was an unsuccessful national eight-week strike by 180,000 miners of hard coal in Colorado, Illinois, Ohio, Pennsylvania and West Virginia, which began on April 21, 1894.

The Panic of 1907 was precipitated by the action of the Knickerbocker Trust Company closing its doors to prevent a run on the bank. The run on the bank was a result of the failed stock manipulation scheme to corner the market in the United Copper Company. As news spread, other banks and trust companies were reluctant to lend any money. The interest rates on loans to brokers at the stock exchange soared and, with brokers unable to get money, stock prices fell. By Thursday, October 24, Twelfth Ward Bank, Empire City Savings Bank, Hamilton Bank of New York, First National Bank of Brooklyn, International Trust Company of New York, Williamsburg Trust Company of Brooklyn, Borough Bank of Brooklyn, Jenkins Trust Company of Brooklyn and the Union Trust Company of Providence all failed. It was only the intervention of banker J.P. Morgan, who organized other business associates to infuse cash to steady the failing banks. According to Harold Faulkner, the cause of this crisis was the overexpansion and speculation of reckless and unscrupulous financiers and inadequate banking facilities. After the Panic of 1907, the Federal Reserve System was created to eliminate the weaknesses of the banking system.

The recession of 1919 to 1921 was an economic downturn after World War I due to deflation of prices. The business cycle went through a downward swing, as mills closed and wages were reduced. Unemployment rose, as business orders were cancelled. Farmers were especially hard hit, as the food market was glutted and prices of wheat, corn and cotton severely declined. The number of people employed declined by almost one-third. By 1922, deflation had run its course.

The Great Depression had its starting point in the Wall Street Crash of October 24, 1929. On October 29, 1929, the market lost $14 billion in value that day, bringing the loss for the week to $30 billion. The October 1929 crash came during a period of declining real estate values in the United States. Certain industries, notably coal mining, textiles, shipbuilding, railroad equipment, and leather manufacturing, struggled during the Roaring 1920s. Agriculture suffered as well, as the Fordney McCumber and the Hawley-Smoot tariffs weakened American agricultura exports to Europe. In industries, Harold Faulkner noted that industries were pouring an increasing proportion of their income to profits and a decrease going to wages and salaries. Faulkner felt that this was a weakness, because as he wrote, "The obvious result was the tendency to pile up wealth where it would be used chiefly for the further expansion of industrial units rather than to place it in the hands of those who would use it to purchase manufactured commodities. In conjunction with thies another alarming fact was observable: there was litttle or no upward trend in employment to match the growth of population." He noted also that high American tariffs made it more difficult for Europe to trade and pay off their loans from World War I.

Millions of Americans entered the stock market, increasing the demand for securities and enhanced prices. Banks and bond houses organized "Investment trusts" to manipulate stocks owned by the sponsors of the trusts. Speculators focused less on actual values and only on future accretion. The overspeculation led to stocks being sold for three to twenty times their book value.

After the stock market crash, thirty industrial stocks fell from an average of 364.9 to 62.7 dollars per share, a group of twenty public utilities stocks fell from 141.9 to 28 dollars per share, during a period from September 1929 to January 1933. In July 1933 some $74,000,000,000, or five-sixths of the value of the stock market of September 1929 disappeared. According to the American Federation of Labor, unemployment in October 1930 was 4,639,000; in October 1931 unemployment was 7,778,000; in October 1932 unemployment was 11,586,000; In early 1933 tunemployement was over 13,000,000. The decline in Americans' purchasing power severely affected industry. The nation's industrial production in 1932 was 47 percent below normal. Between 1929 and 1932, farm values declined 33 percent and farmer's gross income declined 57 percent.

Zinn notes the devastation to ordinary Americans in great detail. People who were evicted from their homes and couldn't pay the rent set up "Hoovervilles" near garbage dumps. Dispossessed migrant farmers moved from the midwest to California to try to find work. Five hundred unemployed men rioted in 1931 in Detroit. Fifteen thousand jobless men stormed the plant of the Fruit Growers Express Company demanding jobs to keep from starving in Indiana in 1931. In April 1932 five hundred school children marched in Chicago to demand that the school system provide them with food. More than twenty thousand veterans joined the march of the Bonus Army to Washington D.C. to pay their government bonus certificates.

In seeing this history of economic instability in our nation's history, I wanted to know something of the causes of the boom and bust cycles of this country. In the November 17, 2008 issue of The Nation, Robert Pollin wrote an article on the ideas of Hyman Minsky and why he felt unregulated markets always goes through its down cycles. It seemed to make much sense to me. He wrote:

"For Minsky, the key to understanding financial instability is to trace the shifts that occur in investors' psychology as the economy moves out of a period of crisis and recession (or depression) and into a phase of rising profits and growth. Coming out of a crisis, investors will tend to be cautious, since many of them will have been clobbered during the just-ended recession. For example, they will hold large cash reserves as a cushion to protect against future crises. But as the economy emerges from its slump and profits rise, investors' expectations become increasingly positive. They become eager to pursue ideas such as securitized subprime mortgage loans. They also become more willing to let their cash reserves dwindle, since idle cash earns no profits, while purchasing speculative vehicles like subprime mortgage securities that can produce returns of 10 percent of higher.

But these moves also mean that investors are weakening their defenses against the next downturn. This is why, in Minsky's view, economic upswings, proceeding without regulations, inevitably encourage speculative excesses in which financial bubbles emerge. Minsky explained that in an unregulated environment, the only way to stop bubbles is to let them burst. Financial markets then fall into a crisis, and a recession or depression ensues.

Here we reach one of Minsky's crucial insights- that financial crises and recessions actually serve a purpose in the operations of a free market economy, even while they wreak havoc with people's lives, including those of tens of millions of innocents who never invest a dime on Wall Street."

In reading about the past economic crisis and in seeing the devastation caused by the recession that started in 2008, I cannot understand conservative commentators who hold to a pure free market ideology and decry government intervention to stabilize the economy. Tea Party activists are right to say that government is not perfect and has the potential to be oppressive. They don't see, however, that the market economy can be just as oppressive and destructive of our citizens and democratic traditions. The Collapse of Liberalism: Why America Needs a New Left, by Charles Noble is a book written in 2004 and there's a chapter called Why Capitalism Needs the Left that neatly describes the strengths and flaws of the capitalist system. He wrote:

"In combination, free markets and capitalism have also helped usher in and sustain fundamental political changes, widening the scope both of personal freedom and political democracy. Because of this system, more people get to choose where to work, what to consume, and what to make than ever before, while traditional inequalities of rank and status are overturned.

The spread of market capitalism has also laid the foundation for the expansion of democratic decision making. With the establishment of private property and free exchange, political movements demanding other freedoms, including wider access to government, have proliferated. To be sure, capitalism cannot guarantee personal liberty or political democracy - it has coexisted comfortably with dictatorships too, from Nazi Germany to China's current amalgam of free enterprise and authoritarian rule - but to date, no society has been able to create and maintain political democracy without first establishing and securing a market capitalism system. ...

But market capitalism is not a machine that can run on its own. It needs rules, limits, and above all, stewardship. Partly because it is a machine and therefore indifferent to human values, and partly because there is no central planner to assure that everything works out in the end, there must be some conscious effort to bring order to this chaos. Left to it's own devices, unfettered capitalism produces great inequities, great suffering , and great instability. In fact, these in-built tendencies are enough to destroy the system itself. ...

To the extent that capitalism has served the interests of the vast majority of Americans, and not just a few rich investors and corporate executives, the left deserves the credit. ... In the twentieth century, it was the left that fought for racial justice, worker rights, equal opportunity, women's liberation, environmental justice, consumer protection, civil liberties, and antidiscrimination laws - the whole panoply of social and political changes that made America a better society."

I'm not an economic expert. But from what I've read in history books and experienced in my own life, I think capitalism is an imperfect system that has many benefits and many flaws. I live in Silicon Valley, and in the land of Google and Apple and all the big tech companies, I see the benefits of competitive markets in the cities and raising the living standards in many communities. And looking at China and India in the past two decades, I see how market reforms have created a middle class of over 400 million people in the two countries. So I do see some good in capitalism.

But as I look in history and in my own area, I also see the bad things in capitalism. In the rush to exploit its natural resources, the environment is degraded and unhealthy pollution problems occur. To get the cheapest prices on their products, workers often work for dirt poor wages and in sweatshop conditions. The disparity between the poor and the rich causes social unrest. And the tendency of overspeculation causes boom and bust cycles that severely affect the finances of average people. So over the years government set up environmental regulations, child labor laws, workplace regulations, social programs to help the poor, and financial regulations. Government is not perfect, but I think it's the only thing big enough to reign in some of the faults of the free markets. I think there are some social problems that free markets exacerbate and that only the government can help out and that's why I favor a government expansion in those areas.

Hopefully Obama and the Congress can enact some meaningful financial reform to regulate banks and fix some of the flaws that got us into this economic mess in 2008.

If you enjoy this cartoon, take a look at these links for more of my political cartoons at Everyday Citizen:

A Reunion Cartoon
Jasper Joins Two Protests
Bob the Nerd Vampire
Jasper Debates War
Jasper Finds His Way Home
Jasper Escapes the Detention Center
Jasper At A Detention Center
Jasper Meets a Poet
Jasper's Day
Jasper Tackles Health Care
Jasper Protests the War
Jasper and the Economy
Jasper Sings a Protest Song
The Road To Health Care Reform Cartoon
A Cartoon about the Israeli-Palestinian Conflict
A Cartoon about My Experience in an Evangelical Church
A Cartoon about Political Debate
A Cartoon On Gay Marriage