The History of Economic Booms and Busts - Learn Liberty

[MrLewisMovies]

I wish you guys had more videos on this because this is a topic i truly have little understanding of.

[TheMrphill]

There are still booms and busts under markets, but not like the horrors that central banks produce.
The Federal Government before 1913 was still EXTREMELY involved in the economy. This government involvement served to destroy market signals and cause booms and busts.
Also the economy was mostly based on agriculture for much of the time before 1913. Agriculture is susceptible to poor weather conditions that can affect large amounts of landmass, hence affecting the economy at large.

[kingofallclergy]

Thanks! That is what I always thought. It's nice to know that I had a good understanding of this.

[landcitizens]

What is common among all the busts is money diverted into land value speculation. This is not investing because you cannot create more land. This is gambling on land values. The problem is all the cash diverted into this gambling is drawn out of the economy where actual productivity takes place. This is the origination of the boom and bust scenario. What the governments do in reaction, as in FED intervention just treats the symptoms. The only solution is recapturing the rental value of land.

[DerekKCason]

Great explanation!!!! Check this out! I tried to tell this to some people around 2002 and they told me I was crazy!

[CollinLi]

Can you explain why the central banks keep interest rates artificially low? I thought inflation targeting central banks would tend to raise interest rates in a boom...

[nthperson]

There is a good deal to be learned by studying how depression triggers aligned in the past. So, to understand why the "Great Depression" occurred in the 1930s, one must look at what occurred during the years building up to the crash.

A significant amount of the credit made available during the 1920s went into land speculation. A good primer on what occurred is found in the book "Only Yesterday" by historian Frederick Lewis Allen. Not only did investors become captured by the frenzy of the Florida land boom, this same frenzy occurred in many cities in response to population increases that triggered a significant increase in the demand for both commercial and residential land. An agricultural land boom also occurred during the First World War, during which time farmers borrowed heavily to expand their land holdings and production. A few years was required after the war ended for European farmers to recover, but by the mid-1920s global production exceeded demand, prices fell, farmers defaulted on loans when government guarantees were removed, and rural banks failed by the hundreds.

As the land boom crashed, investors shifted heavily into the stock market, driving up prices well beyond what any fundamentals supported. Thus, by the end of 1929 the U.S. economy was stressed across almost all areas of production as well in the financial markets. To be sure, imprudent bank lending deepened the crash and lengthened its duration, but it was a crash in the making because of the failure to utilize tax policy to tame the credit-fueled, speculation-driven land markets. A few economists (e.g., Harry Gunnison Brown, Scott Nearing and John R. Commons) had argued the case made in the late 19th century by Henry George, who showed that cyclical booms and busts would be tamed only if the full or nearly-full public capture of the potential annual rental value of land and of rents from other sources (e.g., the broadcast spectrum) became public policy.

Harry Gunnison Brown was joined over the succeeding decades by a small group of economics professors who continued to make Henry George's case. One could argue that recessions that began again following the end of the Second World War would have been even worse if local governments did not capture some land rent via the taxation of real estate. However, as land prices climbed property assessments rarely kept pace. This made speculation in land an even more profitable investment.

Relying on out-of-date assessed valuations rather than current market values created a serious analytical problem for government statisticians. They simply did not understand that any increase in the price of land is inflationary and did not include such increases in their calculation of inflation. Another failure has been to accurately calculate the annual aggregate rent that is privately captured as unearned income (whether imputed or actual). Since the administration of Ronald Reagan, the federal government has not monitored land prices. The figures utilized in the econometric models relied upon by the Congressional Budget Office and the Federal Reserve are around 5 percent of the actual potential rent in the economy (see Joseph Stiglitz or Mason Gaffney on this particular problem).

I offer here a very rough estimate of the rent attached to just one part of the economy, the residential property market. At mid-2020, the median price of a single-family property was around $295, 000. There are about 140 million existing housing units in the United States. If we assume a fairly conservative median land-to-total value ratio of 35%, this means that the aggregate residential land value in the U.S. is $103, 250 per property, multiplied by 140 million = $14, 455, 000, 000, 000 ($14.455 trillion). Economic theory tells us that this aggregate land price occurs because of the capitalization of the net amount of rent that remains in private hands after taxation. If most or all of the rent were captured via taxation there would be nothing to be capitalized and land prices would fall to very close to zero. What the rent fund might be depends on the discount rate. If we assume that investors will invest in land if they can obtain an annual increase of 5%, the the rent fund would be calculated as follows: 5% of $14.455 trillion = $722.75 billion of rent JUST for the land under existing residential buildings. Add in the number of vacant residential lots around the U.S. and this figure will increase considerably.

Tragically, the public capture of land rent never became public policy, allowing the land market cycle to operate from boom to bust. It is on schedule to crash again in 2026. I have prepared a relatively short video in support of this forecast for anyone who reads this and has an interest in more details:

[string]

"normal" means the rate that would exist if it was being determined like every other price is determined, by supply and demand

[TheMrphill]

Wow. I never thought of it that way.
Giving one central authority a complete monopoly over the creation and enforcement of laws is such a sophisticated way of looking at this issue.
Competition works so well everywhere else in life, but it obviously is foolish to believe competition can be applied to law.
-_-

[EGarrett]

The U.S. government can't inflate gold and gold's inherent properties mean that the last people who hold it will not be left with nothing if somehow the value of gold goes down. So, if there is such a thing as a "gold bubble, " I doubt it's the thing described here.

[MrLewisMovies]

Not trying to be a rude but i was hoping to get some rebuttal to understand the argument better. Wouldn't Gold and silver increase in value because of government printing money? The more printing, the more dollars it takes to buy a product. And precious metals like gold and silver hold there value very well so inflation will make there value in terms of U.S. dollars much greater?

[RedSkiesMusic]

Can someone explain the part about "lower-than-normal interest rates lead to profits that are not sustainable"? And what does "normal" mean here?

[shakaama]

absent a fiat currency, the value of gold has withstood nearly 2, 000 years as a valuable commodity. that being said, even the common man will accept gold, come whatever crash there be. if the Amero becomes a reality, unlikely seeing that the Euro is about to cease to exist, people would still value gold, without question.

[kriskats]

@TWSceptic Yeah, but I think it depends. Gold and silver aren't the only things worth having. I think a lot of people would want to have farmland access to food if it was a real crisis. Even moreso than gold and silver. Other tangible assets like oil and coal will probably also be worth a lot.

[NecessariusVerum]

@natritious1 It wont because gold and silver are of stationary value, its price only goes up because everything else is losing value.

[KeeganIdler]

There is truth to this, but it is not the whole truth. More realistically everyone knows they are riding an unsustainable boom, but still think they can get away with it before the rug falls out. This is particularly true with the tulip example. Government exacerbates, but does not cause the recession (well, not true with the housing bubble, but usually true).

[DoctorFastest]

I don't understand why this guy concludes that speculation wouldn't happen without downward pressure on interest rates. I'm not convinced that a 1% change in the price of money is going to be a large effect on an entrepreneur's decisions, who is going to back an enterprise if and only if expected ROI is good enough, risks low enough, etc. Yes, interest rates will shift these decisions at the margin. But isn't expected future price increases by far the stronger driving force for bubbles?

[samson]

@natritious1 nope this will not happen to gold not to this level. only if we fix our monitary policy will it go down. gold and silver are just reflections of inflation for the most part. u will never see silver at 5 an oz. or gold at 300 an oz. rp2012

[diurdi]

@natritious1 Only if government stops inflating and the price of gold and silver continue rising.

[mattlm]

@natritious1 You'll see it happen with US treasuries soon enough. Depends how long the federal reserve can keep the illusion going.