Land Booms, Capital Stretch-Out, And Banking Collapse

  ^[8] This applies to individual items of capital.   On the other hand, if the tax on capital is shifted to land, and we consider the infinite chain of future buildings, the wealth effects are equally strong.   I leave this moot.

  ^[9] To recompense the self-restraint of its owners (who are always tempted to consume it.

  ^[10] One of the great ironies is that during the manic phase, a theory with a name like "rational expectations," and corresponding pretensions, waxed dominant among economists.   It is one of the recurring conceits of intellectuals to think that social life is, or could be, controlled by rational processes.   One might even take the emergence of such theories as a sure sign that wisdom and judgment are being overborne by mob psychology and crazes.   See Rene Dubos, The Dreams of Reason.

  ^[11] Other words for locked-up are frozen, sunk, fixed, non-circulating, unrecoverable, clay (as vs. putty), etc.

  ^[12] This is Ponzi finance.   David Felix has pointed out how a Ponzi operator develops a demand for capital that actually rises when i.r.s rise.   Could the debtor U.S. Government be entering such a phase?

  ^[13] In the present context I simply use "banks" generically for financial institutions.   It is recognized that Knapp and Keating were S&L cases, and that after 1979 S&Ls were deliberately sacrificed to bolster commercial banks, so the details of the two kinds of institutional history differ.  

  ^[14] George, who often chooses such striking examples, understates this point with an example of an English merchant selling gaudy calico and Birmingham idols, and financing his buyers.   Actually, the heavy and significant credit went from England to the colonies to finance rails and cattle and such substantial developmental items.

  ^[15] Consult other material herein, where we add to "land-saving" the corollary ideas of land-enhancing, land-linking, land-capturing, and rent-forcing investments.

  ^[16] Principles of Political Economy and Taxation, Chapter 1, "On Value," and Chapter 31, "On Machinery."

  ^[17] Wesley Mitchell, Veblen's disciple who pioneered modern business cycle research, had some such model on his back burner, too.   Mitchell, unfortunately, was so dogmatically inductive that it became a compulsion, and he and his National Bureau finally couldn't see the forest for the trees.  

  ^[18] Liquidity varies with volume of land sales, or land turnover:

a. A sale is the occasion for a loan (although not the only occasion);

b. A sale often precedes building; building also occasions another loan, a "construction loan" followed by a "take-out loan" to fund the loan semi-permanently.

  ^[19] Did you know there is a "continental divide" between the St. Lawrence and the Mississippi Valleys?   It is a low ridge, hardly noticeable, a few miles west of Lake Michigan.   It was easily penetrated through the "Calumet Sag" in southwest Chicago.

  ^[20] Someone used the bank notes to pay to sink fixed capital in Chicago, and the bank notes were held by suppliers outside Chicago. This implies growth of Chicago banks, and use of them by depositors elsewhere. The same net effect also resulted when Chicagoans who previously banked elsewhere moved their accounts to new Chicago banks.

  ^[21] At this period, American states were allowed to charter banks, although this would appear to have violated The Constitution. This practice continued until 1863, at which time the absence of southern Congressmen permitted a drastic change. The change did not, however, abort the excesses of what is called "The Gilded Age," 1865-73, and the severe crash of 1873.   Banking reform alone, without reinforcing land and tax reform, has never yet stopped the boom/bust cycle.

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