Why Our System is Prone to Panics

October 10, 2008

In today’s WSJ, John Steele Gordon addresses the question:

How could the richest and most productive economy the world has ever known have a financial system so prone to periodic and catastrophic break down? One answer is the baleful influence of Thomas Jefferson.

Jefferson, to be sure, was a genius and fully deserves his place on Mt. Rushmore. But he was also a quintessential intellectual who was often insulated from the real world. He hated commerce, he hated speculators, he hated the grubby business of getting and spending (except his own spending, of course, which eventually bankrupted him). Most of all, he hated banks, the symbol for him of concentrated economic power. Because he was the founder of an enduring political movement, his influence has been strongly felt to the present day.

It’s so interesting that today’s financial crisis can be traced back to the fight between the Federalists and the Anti-Federalists – between Jefferson and Hamilton. I can’t help but to compare today’s congress with Jefferson circa 1790: well-intentioned and in positions of great power, but with an acute lack of financial sophistication.