Crushing national debts, economic revolutions, and extraordinary popular delusions



A superpower with crippling debt, exorbitant taxes, glaring inequality, wages far exceeding those of competitors, high and persistent unemployment, lack of basic workplace skills, malnutrition, a rapidly growing rival across the ocean to the West, heated debates about the role of government in the economy, and widespread pessimism about the future. Could that be any country but the U.S. today, with China as the looming threat? Toss in costly military misadventures in the Middle East, Greece unable to pay its debts, a sclerotic domestic legal system clogging up the economy, and the rising competitor flouting copyright and other property rights and relying on slave labor, and the case seems clinched. Yet this is also an accurate description of Britain around 1850, with the United States as the transatlantic rival. Surprisingly, what followed was an explosive acceleration of the Industrial Revolution that saw the UK sprint ahead of others during the “Great Victorian Boom” of the third quarter of the 19th century.

The notion that the Industrial Revolution started at some specific time has been discredited. Instead, it is known that there was a long period in Western Europe of accelerating economic growth and of improved technology, going back to at least the beginning of the 18th century. However, it is widely recognized that Britain was the leader in these developments, and that there was a noticeable change around 1850. That’s when the “Great Victorian Boom” started. The pace of economic growth accelerated significantly. Furthermore, as is visible in Fig. 1, the wild fluctuations in the economy that prevailed before 1850 were replaced by relatively smooth growth. This helped convince the public that continuing growth was possible and that the Malthusian specter could be banished.

Some speculations on what we can learn from those events are presented at the conclusion of this piece. First, though, let us explore this little known story, and the part played in it by Charles Mackay. He is known today primarily as the author of the 1841 book Extraordinary Popular Delusions, and thereby the first famous chronicler and debunker of bubbles. A surprising recent discovery is that he was actually one of the most enthusiastic cheerleaders for the British Railway Mania of the 1840s. This episode of investor exuberance ruined most shareholders, who included such famous figures as Charles Darwin, John Stuart Mill, and the Bronte sisters. However, it likely was a key element in sparking the “Great Victorian Boom” that followed, and may have saved Britain from a revolution.

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Fig. 1. Gross Domestic Product at current prices in the United Kingdom from 1830 to 1870.

Full post-John Mauldin

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