This Day In History.....

1844 Mormon founder Joseph Smith was slain by a mob at a jail in Carthage, Ill.
1893 The Panic of 1893 began as the value of the U.S. silver dollar fell to less than 60 cents in gold.

Interesting that at a dinner party last night, a friend of mine was talking about Mormons. I have traveled all around the globe and have, per-chance, met some of the missionaries in various spots. I met a bunch on their way out to play football in a park on the tram in Budapest. I also asked a couple to help me find my way when I was hopelessly lost driving around in Costa Rica. I also met Orrin Hatch who is a buddy of my father since they attended high school together in Western Pennsylvania. I do respect their devotion and sacrifice to spend two years of their lives doing mission work. It must be difficult.

But what was most striking about what my buddy was saying was how hostile he was to the Mormons. I know that they have some funny ideas, and Joseph Smith was quite the peddler of outrageous ideas and claims, but they have seems to have largely moderated and fit quite nicely in the patchwork of American society.

Additionally, my friend is quite hostile to most things that are even remotely close to Republicans. He once likened Lincoln to Milosevic and is of the opinion that Lincoln was a despot. Oh well, it takes all types and I enjoy hearing other's opinions but reserve the right to make judgment on what they say after I have had time to think.

The panic of 1893 is an interesting story. I read all about the economic history of the US from the perspective of Jim Grant, in Money of the Mind and his strict monetarist viewpoints and the hardening of paper money to retain value is a worthwhile read to all that are even faintly interested.

The panic of 1893 is an interesting in how we can draw parallels to what is happening today.

In the last days of the Harrison administration, the Reading Railroad, a major eastern line, went into receivership. That collapse was soon magnified by the failures of hundreds of banks and businesses dependent upon the Reading and other railroads. The stock market reacted with a dramatic plunge. Fearing further collapse, European investors pulled their funds from the United States, but depression soon gripped the other side of the Atlantic as well. An ongoing agricultural depression in the West and South deepened, spreading the misery to those regions.

Although thousands of businesses were ruined and more than four million were left unemployed [MJM note: this represented unemployment rate of about 18%], Cleveland did little. He believed, like most people of both major parties, that the business cycle was a natural occurrence and should not be tampered with by politicians.

Essentially what had lead to this confidence problem was that people were exchanging their currency notes for physical gold bullion and the Treasury reserves fell below the key level of US$100 million. So, there was a severe tightening of money supply, since currency left circulation in exchange for gold. This very rigid method of money supply management frequently led to economic dislocations that resulted in panics.

Today, gold is not fixed at a price but its price floats relative to various currencies. So information can be gathered about the relative values of various currencies by following the price of gold. If gold prices rise, this generally means that monetary policy is loose and the supply of money exceeds its demand.