Posted on 12/27/2008 6:31:34 AM PST by bkepley
At the very opening of the book, Bagehot illustrates with exquisite simplicity how, at least in a boom economy, traders on margin can "harass and press upon, if they do not eradicate, the old capitalist." The old capitalist in question is the poor sap who believes all this stuff about neither-a-borrower-nor-a-lender-be and is foolish enough to be using his own cash:
"If a merchant have £50,000 all his own, to gain 10 per cent on it he must make £5,000 a year, and must charge for his goods accordingly; but if another has only £10,000, and borrows £40,000 by discounts (no extreme instance in our modern trade), he has the same capital of £50,000 to use, and can sell much cheaper. If the rate at which he borrows be 5 per cent, he will have to pay £2,000 a year; and if, like the old trader, he make £5,000 a year, he will still, after paying his interest, obtain £3,000 a year, or 30 per cent, on his own £10,000. As most merchants are content with much less than 30 per cent, he will be able, if he wishes, to forego some of that profit, lower the price of the commodity, and drive the old-fashioned trader--the man who trades on his own capital--out of the market."
Later, Bagehot showed that this need for leverage is no different for those selling money than it is for those selling dry goods. The banker can no more choose not to lend than the merchant can choose not to borrow:
(Excerpt) Read more at weeklystandard.com ...
It was the best description of an economic bubble ever.
Bubbles apply to politics as well.
He's already driven out the sound trader, who by dint of his character delivered a sound product. There's no sound competition in his locale so he's free to skimp on materials and workmanship to eek out the Jaguar payments from his already reduced prices. Thus a foundation of leverage always drives quality down (think Home Depot, and, like it or not, WalMart, where trinkets pass for "goods").
And if his entire operation produces nothing, but is simply cash flow from customers to lenders, he winds up like Bernard Madoff, more or less.
Perfect representation of the contemporary USA.
Hope the world doesn't know.
...
The world is rolling in dollars because of it.
everything is sound until you get to the last line. Obviously there is something being produced in the space between consumer and lender. It’s called production of goods and services. are you saying all this leveraging doesn’t result in goods and service being produced/delivered?
scolarly -—>scholarly (for those of us in Rio Linda).
Years ago, I read the book you mentioned. It is now freely downloadable from Project Gutenberg website:
http://www.gutenberg.org/etext/24518
“Memoirs of Extraordinary Popular Delusions and the Madness of Crowds”
Mackay, Charles, 1814-1889
It deals with more than public mania’s.
Subject:
The Mississippi scheme — The south-sea bubble — The tulipomania — The alchymists — Modern prophecies — Fortune-telling — The magnetisers — Influence of politics and religion on the hair and beard — The crusades — The witch mania — The slow poisoners — Haunted houses — Popular follies of great cities — Popular admiration of great thieves — Duels and ordeals — Relics
Thank you, my bad.
It needs to be updated, no? The Obama Election...The Fells Acres Case...
The House of Acre is mentioned in the book dealing with the Crusades.
Oh, that is another subject.
can one get a pdf from that site?
By the way I like your screen name. Adam Smith was a smart Scotchman, he understood the invisible hand.
It amazes me how many people simply do not understand that Central Planning always fails. Those who advocated it are either frauds and know better, or ignorant and egotistical at the same time.
I will look, all I have ever downloaded were either .txt or html versions. You could probably auto-format the .txt version in any good word processor.
It is a really good site for Classical literature. I have been a history student for a very long time and like some of the stuff available there.
There is a .html version that is a 14MB download. It may have some of the illustrations.
http://www.gutenberg.org/etext/24518
There is also a Plucker version, that is an electronic book format of some kind. I have never used that format.
I first read a hard copy of the book, but could not find a copy for sale that I could afford, and don’t have a copy except for the .txt download.
There are several utilities, some free, I believe, which will allow you to convert the HTML to a *.PDF file. They usually work by installing as a “printer” and then you simply open the HTML in your browser and then “print” it to the utility.
I use a paid utility called ClicktoPDF by the makers of Clickbooks. After converting the file to *.PDF I can then “print” it to Clickbooks as a paginated booklet.
Check out C/Net (www.download.com) for some possible free ones.
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