Since one of the primary purposes of How the World Works is to serve as a vehicle for expeditiously passing on to readers every new iota of knowledge that accretes to my brain, no matter how trivial, I feel compelled to share the news that I learned a new word today: "defalcation."
According to Wikipedia, "defalcation" is a term used in the United States Bankruptcy Code to describe a bad debt emanating from such a foul deed that it cannot be discharged in bankruptcy proceedings. It can also be used as a synonym for embezzlement.
I ran across the word this morning in quotation from "The Commercial and Financial Chronicle of May 16, 1884":
The uneasiness increased, rather than diminished during Tuesday, and when it appeared on Wednesday morning that a defalcation of $8,000,000 had been detected in the Second National Bank, confidence entirely disappeared.
Why, you may rightly ask, with all that's going on in the world today, am I poring over obscure journals from 124 years ago? I must blame Barry Ritholtz at the Big Picture, who linked today to a fascinating New York Times article from 1911, "The Recovery From the Great Panic of 1873." (The article contains the aforementioned quote.)
As recent readers of How the World Works are likely aware, for at least a month, I have been intrigued by 19th century financial panics, with pride of position going to the Panic of 1873, which set off the Long Depression. So flashing an ancient PDF from the Gray Lady's archives in front of me got me as revved up as if I was the Republican base on my way to a Sarah Palin rally.
The author of the Times' extensive survey of panics and their aftermath in the late 19th century turns out to be Roger Babson, an investment banker and statistician who founded Babson College, is reputed to be the "first financial forecaster to predict the stock-market crash of October, 1929," and ran for president of the United States in 1940 as the candidate of the awesomely named National Prohibition Party.
Although the church-affiliated party was best known for wanting to outlaw vices such as alcohol, gambling, and narcotics, as well as indecent movies and publications, the party also advocated reducing debt and taxation, conserving natural resources, aiding farmers, and "assuring workers and consumers a fair share of industry's products and profits." Although Roger Babson knew his party would not win the election, he felt it was his duty to bring its moral and religious agenda to the nation. Out of a field of eight candidates, Roger Babson followed third behind Franklin Roosevelt and Wendell Wilkie.
Babson's New York Times piece is more interesting for the color it provides than as a piece of analysis, although there are passages that ring true, and the general sense of near constant financial chaos is bracing. My guess, looking back, is that he might have been predisposed against a bank bailout:
In fact, a study of history shows me that public always forgets that our business epochs are as natural as the tides of the ocean, and they continually endeavor to change conditions by tinkering with the tariff or legislating against the railroads, or making some similar unintelligent move.
But how can you argue with this?
The reason why a major depression comes about once in twenty years is said to be due to the fact that each new generation of businessmen, which is produced every twenty years, can learn only from experience...
Or the early homage to globalization:
A study of financial "world conditions" for the past 100 years shows the intimate relation between business conditions in different countries of the world and that unsatisfactory business conditions spread and travel the same as an epidemic of storm.
But my favorite part comes from his conclusion, in which the learned historian suddenly transform himself into a tout for his own stock-picking business.
This shows that the only way to be forewarned of these great crises in mercantile, monetary, and investment affairs is to study general fundamental conditions along the lines indicated in my book entitled "Business Barometers" ... Merchants and investors who are content with studying surface conditions and "let well enough alone" are most certain some time to fall as did the tens of thousands of worthy men from 1893 to 1897. Those, however, who will study bank clearings, railroad earnings, foreign trade, gold movements, crop conditions and such other fundamental figures as my office provides, will be fully prepared for the next period of readjustment as the "big men" were prepared for the panic of 1898.
Consider yourself warned. How the World Works certainly does.