1908 – 2008 – 2108

MrMorgan
The New York Times, 11/4/1907

In October of 1907, financial markets in the United States came to a complete halt. Credit markets froze, major banks collapsed, and the stock market plunged. Heads of industry, like J. P. Morgan, were forced to inject massive amounts of capital to prevent a complete collapse.

The circumstances of the Panic of 1907 are very similar to our current crisis. In both, the economy had experienced huge growth over the preceding decade. Banks lowered lending standards, which led people to take on more and more debt. When bank assets began to decline, depositors panicked, and there was a run on the financial system.

But for the rest of this post, I’d like to focus on the period that follows a financial crisis—not on the crisis itself. (Keep in mind that although I speak in terms of American progress, my point applies to any country around the world.)

* * *

The period following 1907 was monumental in American history.

Influential figures of the era would forever change the world: Thomas Edison, John D. Rockefeller, Mark Twain, Rudyard Kipling, J. P. Morgan, Henry Ford, the Wright brothers, Nikola Tesla, Andrew Carnegie, Pablo Picasso (Spain), and Albert Einstein (Germany).

In 1908, the Wright brothers performed their first public flights. Henry Ford introduced the Model T, changing automobile industry forever and giving the world it’s first modern assembly line. Frederick Cook became the first person to reach the North Pole. The United States in particular was at the dawn of one of the greatest technological and economic expansions in history.

1908
New York City skyline, 1908

In the past century, the United States has grown at astounding rates: 6.5% annual GDP growth, 1.2% annual population increase, 2.7% real GDP growth per capita (inflation-adjusted GDP growth per person). These figures don’t do justice to the profound change that has occurred during that period. To paraphrase Warren Buffett, the average person today lives much better than John D. Rockefeller did at his height (and he was worth over $300 billion).

Will the next hundred years hold a similar fate? In terms of expansion, probably not. But what we lack in growth, we can make up for in accomplishments.

Over the past few decades, manufacturing skill and productivity have moved to other countries. Going forward, the US will still be a manufacturer, but on a much smaller scale. Hopefully we will continue to work with faster growing economies like China, India and Brazil for the mutual benefit of everyone involved.

Looking Forward

So the US won’t be the world’s manufacturer anymore. And at the moment, we don’t have much capital to spare. But the one thing that we will continue to export is our ideas.

Much ingenuity with a little money is vastly more profitable and amusing than much money without ingenuity — Arnold Bennett

Innovation and discovery will continue to drive our economy in every industry. Whether it comes in the form of technology, business models, problem solving, or making current methods more efficient.

Now that the tide has washed out, we have truly begun to see who was swimming naked. And that’s a fantastic thing. To the businesses, investment funds, and individuals who were overcome by greed, took too much reckless risk, never added value, and thought that things would always be easy—farewell. And good riddance.

My only hope is that the current economic problems won’t diminish our drive to take risks. Based on history alone, I don’t believe it will. After all, if no one takes any risks, society won’t progress. (And by “risk”, I don’t mean “financial speculation.”)

2008 may have marked the worst financial collapse since the Great Depression, but that will never stop the progression of ideas.

New York 2008
New York City skyline, 2008

__________________________

The following books were used as a reference for this post:
(both are highly recommended)

The Panic of 1907, by Robert Bruner and Sean Carr
America, 1908
, by Jim Rasenberger

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