Truth, independence, fairness, transparency, respect, excellence. This is NPR. This is Planet Money from NPR. Welcome back everyone to Planet Money Summer School, economic history of the world. No dates to memorize no long essays with footnotes, just the feeling of the temporal breeze in your hair as we drive the roadways of history with the top down. I'm Robert Smith, today is lesson 4, The Age of the Panic! Could you hear the exclamation
work there? Good. So far in summer school we have searched for the origins of money, watched the workers rise up and witness the birth of the finance bro 400 years ago. But each and every time the story doesn't seem to end well. There are economic innovations, then people get greedy, and then the whole thing just collapses. On today's show, the United States is born,
and says to the rest of the world, hold my beer. We are going to invent totally new ways to get rich and then subsequently crash and get poor again. Our professor today studies early American financial history, Sharon Murphy from Providence College. Hey Sharon. Hi, thanks for having me. Sharon, one of the interesting things about a new country like the United States is that it gets to invent its own economic system. There are a lot of decisions the founders have
to make on things like banks and currencies. And at the very beginning, the US does not, for instance, create a single paper currency like we have today. What were they afraid of? They had had some bad experiences during the colonial period with different colonies issuing paper money, and even during the revolution itself, when they issued so-called Continentals as paper money to try to finance the war. And it resulted in a lot of inflation.
So they questioned the wisdom of this. And so in the Constitution, they focused on giving the federal government the right to coin money and regulate money, but not necessarily the power to create paper money or to establish corporations. Well, everything I know about American history I learned from the musical Hamilton. So I know that there was at least one man who was pushing for a big national bank and economy
that was all working together and centralized. But what was the argument against that? Who was trying to stop a centralized economy? Yeah, a lot of people feared having too much power concentrated in the hands of a small number of elites, especially when you consider the financial center of the United States was still in Philadelphia, and not everybody was in Philadelphia. Did Philadelphia have
everybody's back? Did they have everybody's best interests in mind? So there was definitely concern about concentration. But it turns out if you try to have one country without one economic system, well, things go bad pretty quickly. So today we'll have two stories about the chaos of the early United States and how the US eventually sort of fixed it. I know that you love this drama, Sharon. Well, it's fascinating to study people who are experimenting with these things and they're
not quite sure what works and they're trying to piece it all together. So it's always interesting to see really smart people grappling with things they don't yet fully understand. That should totally be the motto of Planet Money Summer School. Smart people grappling with
things they don't yet fully understand. I'm going to make the t-shirt. After the break, we will have ringside seats at one of the first big economic fights of the United States of America, the President versus the Bank of America. Support for Planet Money Summer School comes from Merrill. Whatever your financial goals are, you want a straightforward path there. But the real world doesn't usually work that way.
Merrill understands that. That's why with a dedicated Merrill advisor, you get a personalized plan and a clear path forward. Go to ML.com slash bullish to learn more. Merrill, a Bank of America company. What would you like the power to do? Investing involves risk. Merrill Lynch, Pierce Fener and Smith Incorporated, registered broker dealer, registered investment
advisor, member SIPC. Hey, it's Aisha Roscoe from NPR's Up First Podcast. I'm one of thousands of NPR network voices coming to you from over 200 local newsrooms across the country. We bring all Americans closer together through free and independent journalism, music, politics, culture, and so much more. The NPR network, what you hear changes everything. And more at npr.org slash network. One of the problems facing the early United States was that no one could agree on how centralized
the government of this nation should be. The states were all very different with very different economies. Should the president and Congress be able to tell them what to do, create a single set of rules for an economy? And so are two historical flashbacks today. Show us how the US struggled for most of its history to get this balance right. One early thing the founding fathers tried was to create a national bank to help the government do business.
They did the Bank of the United States and then they shut it down. And then they tried again in the early 1800s and that led to one of the great economic battles in US history. The politician versus the banker, specifically the president of the United States versus the president of the bank of the United States. And the two men could not be more different. The president was Andrew Jackson. He grew up poor and orphan, killed a man in a duel.
And the banker was Nicholas Biddle, rich kid, poet and schemer. Jacob Goldstein and I did this episode back in 2017. And here's a little music. So you don't notice how young I sounded back then. Right in the middle of the city of Philadelphia. And you can see it to this day. There is a building that looks like the Parthenon. It's big. It's made of stone. There are so many columns. So many columns. Definitely more columns than in it's.
In the 1820s, this building was the center of the American financial world. It was the bank of the United States. And the bank of the United States in the 1820s was unlike anything we have in this country today. In fact, it was unlike anything else they had in the country back then. There were lots of little local state banks. But the bank of the US was the only bank in the country that operated all over the country. It was created by an act of Congress
that gave it a monopoly to do that. The federal government kept its money there, did its banking with the bank of the US. But the bank of the US was a private corporation, answerable to its shareholders, run for a profit. And inside this Greek building, in the very back in a giant office was a man with his fingertips stuck together in a thousand yard stair. Sitting on a throne. Sitting on a throne. The bones of Alexander Hamilton. Nicholas Bittles, the president of the bank of the United
States. In any movie of this, Bittles would be the villain. Oh, you hurt me by saying that. This is Cordelia, Francis Bittles. Nicholas Bittles, great, great, great granddaughter. You're right. You're not personal, you know what I mean? Well, I take it personally because I'm writing about him. It's not even personal to Bittles, though. Like, you know what I mean? It's just structurally. He's like the rich banker. Like, of course, he's the villain.
Of course, you're absolutely right. And I would have said that four years ago. Yeah. And you're a Bittle. And I'm a Bittle. The deal is opinion about her, whatever, great, great, great grandfather. It changed when she learned something important about him. She learned that Nicholas Bittles was really good at his job as, you know, head of the Bank of the US. And that was really good for the US in a bunch of different ways.
The Bank of the United States was doing a lot of the economic stuff that today is the job of the federal government and the federal reserve. So for one thing, the Bank of the US back then printed paper money. At the time, official government money was just gold and silver coins. The government didn't make any paper money, as we know it. And if you took your gold coins to a local bank, that bank would give you a piece of paper with the
bank's name on it, sort of like an IOU claim check. You or anyone else could turn that into the bank to get your gold back. These bank notes became functionally money. It was an incredible amount of power. And having all of this power put Bittles at the center of this small club of elite who were running America. And he is great friends with all the presidents, with Adams, with Madison. And you can see even just through his diary writings, he loved being in this position.
He loved being a banker so much. He wrote a poem about it. You're any? I'm ready. Here's a couplet. I prefer my last letter from bearings or hope. Bearing and hope are banks. So I prefer my last letter from bearings or hope to the finest epistles of Pliny or Pope. Who are writers? Yes, writers. Maybe it's Pliny. Pliny the Elder? Don't know. The point being he was not much of a poet. He was really good at banking. Nicholas Old School
Bittle had found his thing, running the bank of the United States. He figured he'd do it forever. There was only one thing standing in his way. Andrew Jackson. As far as I can tell, Jackson is the only person who would become president of the United States to have killed a man in cold blood. This is H. W. Brandt. He's a historian at the University of Texas. And he said, you know, Jackson was not in Bittles Club where you
pal around with former presidents and write poems about banking. He was in the club of people who shot at each other in duels. He told us about this time that Jackson demanded a duel from Charles Dickinson, a man who had made the bad choice of insulting Andrew Jackson's wife. He stood and took a bullet from Dickinson. The bullet lodged itself quite close to Jackson's heart, but just missed. In part because Jackson was a skinny guy and
he was wearing this sort of large overcoat. And with that bullet next to his heart, Jackson leveled his pistol and shot Charles Dickinson. Morely wounded him. He died several hours later. You know, voters loved these kind of stories about Andrew Jackson. In fact, he was elected president in 1828. And you know, today Jackson is this, it's this really very controversial figure, right? He may be best known now for the horrific way he treated Native Americans.
But at the time, that was not the way people saw Jackson. They saw him as this, as this man of the people and that he was bringing the people with him into the White House. I'm quite literally, there are these stories about his inauguration party where there's piles of liquor and it's crowded and people are breaking glass. People like rushing the
people bringing the whiskey punch out and it's like knocking it over. And it got so out of hand they had to move the whiskey punch out onto the front lawn just to get people out of the White House. It's a classic solution. No more booze in the house. And like any good populist, Jackson did not like banks. In his particular case, he even hated paper money. He thought the country should just be run on gold and silver, which was not like
some crazy fringe view at the time. I mean, to get your head into it, think about the way a lot of people feel now about like all the sketchy mortgage products that banks cooked up in the housing bubble of the 2000. That is how a lot of people thought about paper money back then. And for good cause, I mean, banks in the 1800s would all of a sudden just go out of business and the bank notes, their IOUs for gold, the paper money would be
worthless. So imagine then how Jackson felt about a bank of the United States with special powers granted by the federal government. It was a private bank. It had his own board of directors and people increasingly thought that this thing, this national bank that operated at the behest of the government ought to be answerable to the government. But this bank of the United States was not answerable to the government.
So you have a president who hates banks who is literally killed another human being. And Nicholas Biddle decides he's going to go visit him. And it's shockingly cordial. Jackson says to Biddle, here's the quote, I do not dislike your bank any more than all banks. In other words, it's not personal. I just think what you do is a total scam that is bad for America. And then Biddle says, well, I'm very much gratified at this Frank
explanation. In other words, thanks for not shooting me. Let's not do this kind of meeting ever again. And then after the meeting, Biddle's like telling his friend about Jackson and he calls Jackson's ideas about banking, quote, the honest, though erroneous notions of one who intends well. In other words, I take Jackson seriously, but not literally. But Biddle knows trouble is coming. The bank of the United States, it has to be reauthorized
every 20 years. Just to stay in business, Congress has to pass a bill and the president has to sign it into law. Otherwise, the bank is done for. And so Biddle comes up with this plan. He is going to go on the offensive. He figures, people are kind of liking the bank of the United States. Jackson's up for re-election. I'm going to push this bill now. Get it quickly before Congress and put pressure on Andrew Jackson to renew my precious bank charter.
So Biddle pulls together this army of supporters in Congress, you know, powerful politicians, well connected politicians. And his like his star player in Congress is the senator from Massachusetts, Daniel Webster. If you were alive in the 1820s, you would be so excited right now. When Daniel Webster rose to speak, Washington stopped doing what it was doing and people flocked to the Senate to listen to Daniel Webster. It was high drama. It was wonderful
entertainment. And you could be educated in the process. What people didn't generally know, though, was that Daniel Webster was on a retainer with the bank of the United States. He was getting paid by the bankers. Yeah, he was getting paid by Nicholas Biddle personally. To well, to represent the bank while he was a senator for Massachusetts. Is that legal? Was that legal? Could you do that? It wasn't illegal.
So the great order and paid shell, Daniel Webster rises to speak. He says many of you, many of you including our dear president, do not like banks printing all of this paper money. And I get it. I get it. You want safe and sound money. And he says, okay, if you want safe and sound money and who doesn't, the bank of the United States is good. Huzzah. The bank of the US is your friend. Huzzah. Because the bank of the US is a cautious conservative bank. You know, it doesn't just run
around printing paper money like crazy. In fact, it reans in all of those state banks. He says, and I do quote here, in the absence of a bank of the United States, the state banks become effectively the regulators of the public currency. Their numbers, their capital and the interest connected with them. Give them the power which nothing is competent to control. In other words, Webster saying if you think the bank of the United States is shady and out of control, you should see the state banks.
And the Senate buys it. Congress passes a lot of give Bittles Bank another 20 years of life. Bittles in Washington, DC for the event. He gets cheered inside the capital. He throws a party that goes late into the night. And then on July 4th, as it happens, 1832, that bill lands on Jackson's desk for him to sign into law. Jackson looks at it, considers it for a moment, and says, oh hell no.
Not a direct quote, but Jackson does veto the bill. And in fact, he writes this famous veto message like this populist document that says in part, when the laws make the rich, richer and the potent more powerful, the humble members of society have a right to complain of the injustice of their government. The bank of the United States will be no more. And Bittles actually thinks at this moment, I've got him right where I want him. He thinks
this veto is going to cost Jackson the election. He calls him like a panther, biting at the bars of his cage, and he pays to reprint thousands of copies of this veto message to use as an attack ad. And he miscalculated. People love the veto. They love the veto message, right? The humble members of society, the people's president overruling a corrupt congress to fight elite bankers. You cannot lose with that. Jackson wins reelection in a landslide.
Five years later, the economy of the United States is completely destroyed. Yeah, about that. It is the panic of 1837. Banks collapse, people lose their jobs. There's not enough gold and silver to go around. And this would usher in a sort of age of booms and busts and panics for the next 75 years. We'll talk about why after the break. This message comes from Applecard. Earned up to 3% daily cash back on every purchase
every day. Then, grow it at 4.40% annual percentage yield when you open a savings account with Applecard. Visit apple.co slash card calculator to see how much you can earn. Applecard subjects are credit approval. Savings available to Applecard owners subject to eligibility. Savings accounts provided by Goldman Sachs Bank USA member FDIC, Terms Apply. As we look back at history and let's be honest, that is the goal of summer school this year,
we see that there's a regular cycle of good times and bad times, booms and busts. The business cycle, if you want to be academic about it. And back in the day, like now, governments weren't quite sure what to do about this. You wanted people to start businesses. Take risks. Make money in the good times. But when businesses started to fail, government didn't yet have the tools to help out. Especially at risk during the bad times or the banks.
A bank is a sort of psychological trick that only works if you trust the bank. Trust the person in the top hat to hold your money and invest it. But when people started to get scared during the bad times, they would rush the banks, demand their money back. You know this, it's called a bank run. And if you have a bunch of bank runs, it's called panic. Panic. Let's bring back in our professor Sharon Murphy from Providence College, who
is thank goodness a little bit of an expert on the panics of the United States. When we ended the episode about Nicholas Biddle and Andrew Jackson, the bank of the United States was no more. And the panic of 1837 had just begun. We consider this sort of the age of the panics. So what is a panic and how many were there? Oh, well, there's lots of panics. A panic is just when people lose confidence in the
economic system. So the banking system is built on trust and confidence. People have to have the positives, shareholders have to have confidence that their bank is investing their funds wisely. Banks have to have confidence that debtors are paying off their loans when they're due. Banknote holders have to trust that the bank has gold and silver in their vaults to redeem their notes. And the panic occurs when you lose trust. You lose confidence.
You lose predictability. And it's replaced by the fear of the unknown. People no longer know who they can trust, which banks are sound, which debtors are reliable, which investments are safe. And we see the same sort of behavior in every panic. People in the street, mobbing the banks, demanding their money back, hoarding all their cash. In the case of the panic of 1837, what caused this huge loss of trust? Yeah. So leading up to 1837, the economy entered
a real growth period, partially because of the bank war. The bank of the United States is no longer there to kind of keep these banks in check. And then it all comes through a screeching hall. So this is 1837, but we see this time and time again, right? Part of the economy does well. Money pours in the bubble, the bust. It's just to happen a lot really. Yeah. It depends on how you count. Major ones happen every 15 to 20 years with
some minor ones in between. But yeah, this becomes a cycle in the economy. These are smart people. They know the panics are coming. They know the bubble and the bursting the bubble is going to happen. Why can't they avoid it? Oh, well, everybody thinks this is the last one. Everybody thinks it's never going to happen again. Everybody wants to think they're going to get out before the bottom drops out. They think they can take advantage of the
boom before the bust occurs. Some of it is hubris. They think that they have figured it out. And it's not going to happen again. And yeah, and each time there's, there are slight differences. So it doesn't necessarily look exactly the same. So they think, well, maybe this time is going to be different. And I suppose even those people who realize there
was a problem, there wasn't much they could do about it. As we saw in the Andrew Jackson episode, there was a real distrust of the federal government putting economic rules onto all of the states. It would take something very big for the US government to start to centralize the banks and the currency. Our next historical flashback deals with this exact issue. From an episode we first aired in 2012, I'll let David Kestinbaum and Jacob Goldstein take
it from here. Imagine you're a bartender in New York City in the year 1859. The bar where you work looks pretty familiar. There's a wooden bar, stools, tables, some people drinking, but now go behind the bar and open up the box where you keep the money. What you see there is crazy. You'll see a big mess. You could see any one of 8,000 different kinds of state banknotes and local banknotes. You'll see small change. You might see small change that's
been cut up into pieces. Did you say 8,000? I did say 8,000. Yeah, it's not a good system. That world you just heard described by Brian Murphy. He's a historian at Baruch College. It is amazing to me that it existed at all. Why didn't our founding fathers when they're setting up a new country? I mean, you set up a new country. You need a national anthem to sing. You need a flag and you need a currency. The US government did create a currency.
It did issue some gold and silver coins, but there were not enough of these coins to go around. The government was not printing paper money. For the most part, the government did what countries all around the Western world did at the time and let people use whatever they wanted as money. Often what they wanted to use as money was these pieces of paper
issued by banks that were called banknotes. Matt Juremsky, an economist at Colgate University, he says sometimes the banknotes would have these very serious pictures of like bank presidents on them, but that was not always the case. I'm looking at the Howard Banking Company's $5 banknote. It's one of my personal favorites because it's a Santa Claus note.
What? It's Santa Claus? A Santa Claus note. You get a picture I think of the bank president up in the left hand corner and then right in the middle you get a picture of Santa Claus on a sleigh. Basically, this note will do is that if you have this note, Santa Claus and all, you'll go to the Howard Banking Company and they are obligated to pay you $5 in Golden Silver Coins if you demand it at their bank. If you demand it at their bank, but nobody else outside that bank is required to give
you gold or silver for the note or for that matter, even to accept it at all. Sometimes people might choose to take the bill at full face value. Sometimes they might not want it. Sometimes they'll say, yeah, I'll accept it, but it's a $5 bill. I'll give you $4 for it. A dollar bill was not always worth a dollar in this world. Now, you could argue and some people do that this, this universe of 8,000 different kinds of currency is the
free market at work and that this market for bank notes helped keep banks honest. But this world, it did create huge problems for people. People for example, like this one traveler who kept a diary, Matt Juremsky is going to read from it. And before you hear it, there is one term that may be unfamiliar. The term is shin plaster. It means worthless paper. Okay, here's the diary entry. Starting from Virginia with Virginia money, reach the Ohio River exchange $20 Virginia
note for shin plaster and a $3 note of the Bank of the West Union. Pay it away, the $3 note for breakfast, reach Tennessee received $100 Tennessee note, went back to Kentucky, and then forced there to exchange the Tennessee note for $88 of Kentucky money. It goes on and on and on and on. 100 yards from the tavern door, all notes refused except Baltimore and Ohio Railroad.
So that's if you're trying to spend money, what if you run a store? What if you run that bar in New York and some guy walks in and gives you some bill that you've never seen before? What do you do? Well, that's when you take out your trusty bank note reporter, his huge book, The Size of a Phone Book. This thing, it tells you what bills are in circulation, what they're supposed to look like and how much they might be worth.
You would take out this big, you know, encyclopedia looking thing and you'll say, okay, you know, if it's the Howard Banking note, you'd look in this, you'd find the Howard Banking Company list. It would then tell you where the bank was and then it would tell you at what discount the note was to be accepted at. So for instance, if this was a particularly good bank, $5 or no, it would trade at $5. You as a bartender would accept it at that. If it was trading
at a discount, it would also say that. If the bank had defaulted, you'd know that and you'd know that it's worthless and not to accept it. And these books, new ones come out every month to keep up with the news and you have a different book for every city. This is because a bill from say a Boston bank might be worth $5 in Boston, but only $4 in New York. Usually the further you get from a bank, the less its money is worth. People's money loses value just because they're traveling. And we haven't
even mentioned counterfeiting yet. Here's Brian Murphy. This is the great Huckster scam of the 19th century. People make up fake banks. One of my favorite ones is a, it's issued by I think the bank of the Golden Fleece, right? And whoever takes it is getting fleeced, right? That's right. That's right. So the engraving, right, the detail of this beautiful engraving on the front is this fleece, is this sheep being, being shorn.
You might think the next step in this story is that the government decides this is crazy. We are going to have one central currency, but that is not how it happens. No, that is not how it happens. What happens is the Civil War and the war is incredibly expensive. The government, the union, starts to run out of money and it needs to buy cannons and bullets and pay soldiers. And so the federal government does two dramatic things.
The government prints up paper money and uses it to buy stuff. This paper money, it's called greenbacks. David, I actually printed out one. I think it's sitting in front of you there. So basically it's green. We could say, perhaps obviously it's called the greenback. And it looks a lot like a dollar bill or a ten dollar bill. This is actually a picture of a ten dollar note. It's got a picture of Abraham Lincoln on it. It's got an eagle that says United States. It's got a one
and a zero. It's written out ten dollars. It looks like a ten dollar bill, an old ten dollar bill. And this was basically the first dollar bill issued by the US government. So during the war, these dollars, they were not always worth a dollar in gold. So oftentimes you would have discounts of early on, a couple of cents, as the war wasn't
going in the US's favor or actually the union's favor. However, once the union kind of started winning a lot of the battles, you'd have you had a shoot back up because it was a bet on the union's victory. So this was not a plan to establish a single national currency. It was a plan to fund a war. Dremnsky says the greenbacks, they were seen as an emergency thing. Something a government would only do in time of war.
The underlying belief was that these greenbacks were temporary. In the sense that we would issue them, the war would end and that within ten years they'd be gone. The problem was that the consumers kind of liked them. Surprising then, not surprising today, would you rather use a bill issued by a bank? You're not sure exists or would you want to use a bill that everyone recognizes. So the greenback, that was dramatic thing number one. And dramatic thing number two, slightly
wonkier than the greenback, but equally important, national banks. Banks that are regulated not by states, but by the federal government. These banks are created during the Civil War and they also help raise money for the union because in order to be a national bank, you had to buy government bonds. In other words, you had to lend money to the government.
Sneaky. And these banks, of course, they could issue their own bank notes. And at the end of the Civil War, the government actually starts putting attacks on those old bank notes issued by the state bank. So after the Civil War, the only paper money that's circulating is the greenbacks and the bank notes issued by the national banks. And those bank notes issued by the national banks, they all start to look alike. So in the postwar years, there's
this convergence. Bills are looking more and more uniform. And for the first time, they're all worth what they say they're worth. So if you have a $10 first national bank note of New York, then that will trade in that bar at $10. Okay. So anywhere you travel to, so if you took that first national bank of New York bank note into say Ohio or Wyoming or Louisiana, it's still going to trade at its face value. So the United States at this point is kind of
accidentally stumbled on an economic innovation. A $10 bill that's worth $10 in New York and in Connecticut and in New Jersey, you can take it all the way to Wyoming and it is still worth $10. And now finally, if you're a bartender, life is much easier. So this bartender has a lot of free time now. He does every time he gets a note, he doesn't have to pull out this big book and set it on the bar. And at the end of the day, he doesn't have to go find brokers to
exchange these bank notes. All he has to do is kind of take in and accept it. He's got time, he can go and do something important, like invent the martini. So this really is how we got from a world of 8,000 kinds of money and of monthly guides that tell you if a $5 bill is actually worth $4 to the world, basically, that we know today, where if somebody gives you a $5 bill, you know it's
worth $5. This makes travel and trade much, much more efficient and really more broadly. The Civil War is this moment when the US finally answers this question, are we one country or are we lots of little countries? The answer, of course, we're one country and this is true for our money as well. Jacob Goldstein and David Kestenbaum from 2012. After the break, the United States now has the power of one currency. Can it stop all the panics? We'll have a professor back to give us the final lesson.
Summer School, back in session with our illustrious professor from Providence College, Sharon Murphy. Thanks for having me back. So as we tell this story, the United States now has a dollar bill essentially, a single currency and yet, and yet, the financial panics continue, the problems continue. It doesn't
solve everything. Yeah, so coming out of the Civil War, it was a real opportunity to try to centralize and create a uniform currency for the first time, which had a dramatic effect on the economic system, but that didn't change the reasons that we were having booms and bus. Because we still had moments of overexuberance, good economic times, and then busts, bad economic times. And more importantly, there wasn't a way to calm people down about the banks to guarantee that when
we put money into a bank, we will actually be able to get it out. So what was the fundamental problem here? Oftentimes, banks have a lot of loans that they're responsible for, don't necessarily have all the money they need in their vault. Doesn't mean they're unstable or bad loans. It just is, they need something just for the short term to help them through. And I know in the early 1900s, that short term solution was often just rich guys, you know, millionaires around would lend money
to banks to keep them in business and to stop the panic. I mean, the most famous was JP Morgan and the panic of 1907. But at some point, the US government said, we cannot rely on rich guys to come to the aid of our banks. We need to create something big, like a national bank, even bigger than Nicholas Bittl could have imagined. A central bank, a federal reserve,
what they call the lender of last resort. Yeah, so the idea of the lender of last resort is that the federal reserve can give them a short term infusion of money to get them over that hump until some of those loans come in or some other payments that they have due. It buys the bank's time until the panic is over. And we should say the creation of the
federal reserve, it isn't immediately a miracle cure. There is the Great Depression. But after that, after the Great Depression, the US stops having these huge panics and economic collapses every decade. Things just get calmer. And so Sharon, looking back at the 200 years of financial history, we've covered in just a short episode. What is the lesson we should learn moving forward from this? Well, I think there's a couple lessons you can take. Economic growth depends on the willingness
to take risks. But the key is to make sure that the people making these risks, the people who receive the benefits when the risks pay off, that they also suffer the consequences when the risks fail. So a lot of the times, they take these risks and then it's the rest of us that suffer the consequences or the government comes in and saves them. So trying to find a way to balance allowing risk-taking without allowing these risk-takers to sink the entire economy as a result
of their own greed. So finding that regulatory balance there is really what we need to somehow learn. And we haven't quite learned it yet, I don't think. We have not quite learned it yet. I mean, we have in the last two years seen major banks collapse and the same ringing of the hands that happened, well, back in Nicholas Bittles' day, it's happening again. How much risk should be allowed? How much should you back up banks? How do you stop people from creating these bubbles
in various areas? And what guardrails should be put around those banks or any corporate institutions what guardrails should be put around them to protect the economy from over-exuberance on the part of some people? Do you ever read the news and say, oh, not again? Oh, all the time. It's a hazard of being a historian that you are constantly seeing the repetition and shaking your head and saying, oh, do we not learn anything? Well, hopefully here on Planet Money Summer School, we are learning
something. This is why we like to give vocabulary words at the very end of the episode. So maybe Professor, you can help us out with the word panic. No longer having faith in the economic system and jumping ship. Wide spread economic collapse and also on a vocabulary list, the boom and bus cycle. The economy's doing really well and then the bottom falls out. Over and over again. Over and over again.
Lender of last resort. An entity like the Federal Reserve or another kind of central bank stepping in to stabilize a bank that is secure but has short-term liquidity issues. Pump some money into it. Pump some money into it exactly. Sharon Murphy, our professor who did not panic during this interview. Thank you so much for coming in. Thanks so much for having me. Well, look at that. We are halfway through our economic history of the world. How the summer and
the centuries just fly by. They fly by. Remember that at the end of the summer, you will be able to get an online Planet Money diploma that will allow you to settle debates at cocktail parties and say, well, actually, to all of your friends. And remember to check out the Planet Money TikTok, they're picking concept from each of our summer school episodes and explaining it in such a fun way you won't even realize your learning. We'll be back next Wednesday with another history lesson about
one of the most powerful economic forces on the planet. Free trade. Planet Money Summer School is produced by Audrey Dilling. Our project manager is Devon Meller. This episode is fact check by Sophia Schuchana, and edited by Planet Money Executive Producer Alex Goldmark. He was engineered by James Willett. I'm Robert Smith. This is NPR. Thanks for listening.