Alasdair Roberts has out a new book (ht: MR) America's First Great Depression: Economic Crisis and Political Disorder After the Panic of 1837. Since I do not have access to an advanced copy of the book, I will take an earlier Boston Globe article of his to highlight some issues.
Alasdair Roberts, Boston Globe 10 July 2011 (some paragraph ordering changed).
Many states were caught up in the mania of 1836-37. They borrowed in
Europe and competed with each other to build infrastructure that would open their markets. Legislators spent indiscriminately. Every new canal, railroad, and turnpike was supposed to pay for itself. But when the economy collapsed, so did the projects.
There was no toll revenue to repay the loans. Foreign creditors pressed the states to raise property taxes instead. But voters resisted new taxes, and many states simply lacked the capacity to collect them…Between July 1841 and December 1842, eight of the country’s 26 states defaulted on their loans. Other states and the federal government also struggled to avoid insolvency. The entire nation quickly became a pariah in international financial markets….
The crisis was a critical point in the evolution of American government. States abandoned their infrastructure schemes and adopted constitutional restrictions on borrowing.
Voters accepted new taxes, and governments developed the capacity to collect them efficiently.
“Self-government is no longer a theory,’’ said John Pettit, an
legislator. “We must take our cool and calm moments to bind and restrict ourselves.’’ Indiana
What a concept, you restrict spending and raise taxes. Today we sometimes raise taxes a little, and sometimes cut them a little. But mostly we just print more money.
Of course the States back then couldn’t make anyone take their printed money. We are not yet at that point.
When we reach that point, we will begin to understand just how wealthy we actually are.