The Driver - Part VI - Economic nightmares and mass delusion.
You may define a mass delusion; you cannot explain it really. It is a malady of the imagination, incurable by reason, that apparently must run its course.p. 86
Garrett was referring to the causes of the Panic, not some policy designed to "stimulate" the economy following the Panic. [Garrett writes often of 1894 even though the Panic is known as the Panic of 1893. Many of the consequences continued to be felt in 1894.]
Continuing on his theme of "mass delusion," Garrett writes of how people throughout history "have been mad together about a number of things, -- God, tulips, witches, definitions, alchemy and vanities of precept." [p. 87].
Leaving aside the issues related to the conflict between proponents of gold and silver, Garrett's words apply today as well as to panics of the past:
Either side was willing to see the government's credit ruined, as it very nearly was, for the vindication of a fetich. They did not know it. They had not the remotest notion why or how they were mad because they were unable to realize that they were mad at all. . . . . . Intelligence was in suspense. The faculty of judgment slept as in a dream; the imagination ran loose, inventing fears and phantasies. That the government stood on the verge of bankruptcy or that the United States Treasury was about to shut up under a run of panic-stricken gold hoarders was regarded not as a national emergency in which all were concerned alike, but as proof that one theory was right and another wrong, so that one side viewed the imminent danger gloatingly and was disappointed at its temporary postponement, while the other resorted to sophistries and denied self-evident things.[pp. 87-88]
The discussion of gold and silver is instructive today for a people that have grown accustomed to paper dollars and the unspoken assumption that government paper has always been the only medium of exchange. But the discussion of mass delusion is even more instructive for those of us that wonder how the recent bubbles could have wrought so much havoc:
Delusions are states of refuge. The mind, unable to comprehend realities or to deal with them, finds its ease in superstitions, beliefs and modes of irrational procedure. It is easier to believe than to think.[pp. 90-91]
Recent superstitions include the belief in 200 to 1 p/e ratios for stocks [1990's] and the notion that real estate prices would always rise [2000's]. Superstitions of 2008 and 2009 include the belief in "hope," "change" and "stimulus."
For five or six years preceeding there had been an ecstasy of great profits. The prodigious manner in which wealth multiplied had swindled men's dreams. No one lay down at night but he was richer than when he got up, nor without the certainty of being richer still on the morrow. The golden age had come to pass. Wishing was having. The government had become so rich from duties collected on imported luxuries that the Treasury surplus became a national problem. It could not be properly spent; therefore it was wasted. And still it grew. This time for sure the tree of Mammon would touch the Heavens and human happiness must endure forever.p. 91
Then suddenly it had fallen. . . . . The trunk was hollow. Everything turned hollow. People were astonished, horrified and wild with dismay. They would not blame themselves.
If we are to survive our current crisis, we must remember how we survived past crises.
Click here for Part VII - brief background on the Panic of 1893, its impact and how it was resolved.