1816

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The Year Without Summer and Without Economic Sense

Last year the Mount Tambora volcano in modern day Indonesia exploded, throwing 38 cubic miles of material into the atmosphere. It was one of the largest volcanic explosions in history. Aside from the local death and destruction, it also caused cooler weather... "A Year without Summer". Worldwide crop failures are causing famine. Coincidentally, a credit crunch in the UK has caused their economy to grind to a halt. In response, they have instituted tariffs on corn to protect the corn industry, but tariffs don't protect the people who eat the corn. (The word "corn" in this context means the major grains used for food.) With higher food prices, people start moving to Canada and the United States. Meanwhile, the US passes its first protective tariff. They want to save the American cotton industry! The tariff adds 25 cents per yard to the price of cotton cloth or $4.35 in modern dollars. The South opposes the tariff because THEY GROW COTTON and they already have established (and better) markets in the UK. The South also imports goods, so tariffs mean increased prices for everything they buy. The Depression of 1818 is coming for the UK and the Panic of 1819 in the USA is next when the price of cotton collapses. [1] [2] [3] [4]

My Take by Alex Shrugged
The problem with tariffs is that they are inefficient, and not responsive to changing conditions. As we saw, the UK tariff pushed food prices up, but a volcanic eruption caused crop failures and famine. Did the UK suspend their tariffs on food? No. It would take too long. Government is slow by design. Economic markets change from day to day, week to week. New problems arise. You don't want your government fine-tuning the economy because by the time it gets things just right, things are all wrong again. The best that government can do is to run the courts to resolve contract disputes, but otherwise stay out of the way. I can see a need for tariffs in a few cases vital to the security of the United States, but politicians will suddenly create a list of "vital cases" that are only vital to particular voters or major contributors. So, even though I can see a place for tariffs in the abstract, I don't see how the present government could possibly implement them and not totally mess it up.

The 2nd Bank of the United States and Fractional Banking

The charter for the 1st Bank of the United States expired in 1811. The bank was run by the Secretary of the Treasury, Alexander Hamilton, and its job was to create a common currency, control the money supply and otherwise act as a central bank for the Federal government. It's charter was opposed by Thomas Jefferson and James Madison, the current President of the United States. Yet Madison is pushing for a 2nd Bank of the United States. The economic chaos after the end of the war has caused a money shortage. Very few coins are in circulation in certain areas of the United States and Madison believes that a central bank is needed to control these shortages. Also, the United States is using several different types of money from the script issued by individual banks to gold doubloons. The charter for the new bank will be approved this year and the bank will be open for business next year. When the time for renewal of the charter comes around, Andrew Jackson will be President and Andrew Jackson hates banks. (This is one of his virtues.) He thinks banks are dishonest. (Well... yes.) So he will fight the renewal of the charter and remove all Federal deposits from the bank. (That will be interesting.) The bank will retaliate, causing economic chaos, until people catch on. The United States economy will be a long time recovering from the 2nd Bank of the United States. [5] [6]

My Take by Alex Shrugged
Fractional banking looks unethical so let's compare it to non-fractional banking. Let's say I deposit $11,000 in gold with my friendly local banker. He says that if I agree to leave the gold in his vault for a year, he will lend $10,000 in banking script to a local merchant who will pay back the loan with interest to the banker. (I get free checking!) A year later I remove my deposit from the vault. That is non-fractional banking. But why can't the banker make THREE $10,000 loans for a year based on the same deposit? It should work. The economist, Adam Smith, said that a bank could capitalize at a rate of 5 to 1 and remain safe. This assumes there will not be a run on the bank. (For popular examples, see the movie, It's a Wonderful Life, and Mary Poppins. Links to clips are below.) Fractional banking can also be abused. In 1809, a bank in Rhode Island used a $45 deposit to make $800,000 in loans. This is fraud, but why isn't it fraud to make $30,000 in loans on an $11,000 deposit? Andrew Jackson would never allow his picture to appear on a Federal Note that could not be exchanged at face value for silver or gold. His picture on the $20 is an implied endorsement, and taking it off of the bill seems like the right thing to do. [7] [8] [5]

In Other News

  • E. Remington forges his first rifle barrel. Remington the Younger enters a shooting match, wins 2nd place and earns a lot of interest in his new rifle. As sales soar he will open a factory In Ilion, New York. (Remington typewriters will come along in 1873.) [9] [10]
  • The kaleidoscope is invented. Sir David Brewster has been experimenting with mirrors and polarized light when he hits on the idea of the kaleidoscope. 200,000 are sold in a few months. [11] [12]
  • The stethoscope is invented by two children and a French doctor. A Paris doctor notices two children communicating with each other using a long wooden tube and a pin to make scratching noises. He adapts a wooden tube to diagnose the heart condition of a woman without having to place his ear directly against her chest. [11] [13] [14]
  • The Stirling Engine is invented. You have to see it to believe it. It works on the temperature difference from the top of the cylinder to the bottom in order to move a piston. I've seen a few potential applications, but if it has been around for 200 years, I suspect all the applications are limited ones. [15]

This Year in Wikipedia

Year 1816, Wikipedia.

See Also

References

  1. Year Without a Summer - Wikipedia (2016). Retrieved on 10 May 2016. “Evidence suggests that the anomaly was predominantly a volcanic winter event caused by the massive 1815 eruption of Mount Tambora in the Dutch East Indies, the largest eruption in at least 1,300 years after the extreme weather events of 535–536. The Earth had already been in a centuries-long period of global cooling that started in the 14th century. Known today as the Little Ice Age, it had already caused considerable agricultural distress in Europe. The Little Ice Age's existing cooling was aggravated by the eruption of Tambora, which occurred during its concluding decades.”
  2. John Steele Gordon. Empire of Wealth: The Epic History of American Economic Power, An. HarperCollins, 96-97. ISBN 0060093625. 
  3. Tariff Table. u-s-history.com (2016). Retrieved on 27 June 2016. “First protective tariff; Clay and Calhoun supported as part of American System; Southern cotton growers opposed; (Madison administration).”
  4. Panic of 1819. Encyclopedia of Alabama (April 12, 2010). Retrieved on 27 June 2016. “The Panic of 1819 was the first significant economic crisis in the United States and led to failed banks, property foreclosures, and widespread suffering in Alabama. The calamity resulted from the declining value of cotton—Alabama's main export crop—as well as other national commodities.”
  5. 5.0 5.1 John Steele Gordon. Empire of Wealth: The Epic History of American Economic Power, An. HarperCollins. ISBN 0060093625. 
  6. Second Bank of the United States - Wikipedia (2016). Retrieved on 27 June 2016. “The BUS was launched in the midst of a major global market readjustment as Europe recovered from the Napoleonic Wars[45] The central bank was charged with restraining uninhibited private bank note issue—already in progress—that threatened to create a credit bubble and the risks of a financial collapse.”
  7. It's A Wonderful Life Bank Run. YouTube (2016). Retrieved on 27 June 2016.
  8. Run On The Bank by Mary Poppins 1964. YouTube (2016). Retrieved on 27 June 2016.
  9. E. Remington and Sons - Wikipedia (2015). Retrieved on 28 August 2015. “Eliphalet II forged his first rifle barrel as a young blacksmith in 1816 and finished second place in a local shooting match with it. Despite not winning the match, he proceeded to make barrels to meet the growing demand for flintlock rifles in the Mohawk Valley.”
  10. Standard Catalog Of Remington Firearms - Dan Shideler - Google Books. books.google.com (Mar 14, 2008). Retrieved on 27 June 2016.
  11. 11.0 11.1 Grun, Bernard. The Timetables of History: A Horizontal Linkage of People and Events. Simon and Schuster, 384-385. 
  12. Kaleidoscope - Wikipedia (2016). Retrieved on 27 June 2016. “Sir David Brewster began working towards the invention of the kaleidoscope in 1815. Together with his mentor and neighbor Meegan Bundries, Brewster conducted experiments on light polarization but it was not patented until two years later. His initial design was a tube with pairs of mirrors at one end, pairs of translucent disks at the other, and beads between the two. Brewster chose renowned achromatic lens developer Philip Carpenter as one of many manufacturers of the kaleidoscope in 1816. It proved to be a massive success with two hundred thousand kaleidoscopes sold in London and Paris in just three months.”
  13. Stethoscope - Wikipedia (2016). Retrieved on 27 June 2016. “The stethoscope was invented in France in 1816 by René Laennec at the Necker-Enfants Malades Hospital in Paris. It consisted of a wooden tube and was monaural. Laennec invented the stethoscope because he was uncomfortable placing his ear on women's chests to hear heart sounds.”
  14. Rene Theophile Hyacinthe Laënnec (1781–1826): The Man Behind the Stethoscope. ncbi.nlm.nih.gov (2016). Retrieved on 27 June 2016. “In September 1816, during a cool morning, while walking in the courtyard of the Le Louvre Palace in Paris, Dr. Rene Theophile Hyacinthe Laënnec, a 35-year-old French physician, observed two children sending signals to each other using a long piece of solid wood and a pin. With an ear to one end, the child received an amplified sound of the pin scratching the opposite end of the wood.”
  15. Stirling engine - Wikipedia (2016). Retrieved on 27 June 2016. “A Stirling engine is a heat engine that operates by cyclic compression and expansion of air or other gas (the working fluid) at different temperatures, such that there is a net conversion of heat energy to mechanical work. More specifically, the Stirling engine is a closed-cycle regenerative heat engine with a permanently gaseous working fluid.”

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