I guess the title of this article is really redundant. When it comes to economics politicians rarely, if ever, learn from history. Hell, many of them refuse to even learn anything from the appeasement of the 1930s. (Such is life and death). Even though the '90s IT boom is fading into history, as have a lot of balance sheets, bank accounts and business fantasies, a considerable amount of unhealthy nostalgia remains, suggesting that the lesson has yet to take root.

So what is the lesson? Quite simply, there's no such thing as a free lunch. I continually warned that the Fed's criminally loose monetary policy had generated a boom whose consequences were inevitable.

In the 1800s (I don't mean 1890s either) David Ricardo was already arguing that booms and busts were caused by excess credit, i.e., credit expansion generated by the fractional banking system. Although he used an aggregate approach rather than a microeconomic one his analysis was a considerable breakthrough and one that the Austrian school elaborated on nearly a hundred years later. Unfortunately Ricardo's thesis was virtually forgotten by the 1840s leaving the field to be taken over by John Stuart Mill's fallacy of explaining booms and busts in terms of rampant speculation instead of monetary disturbances.

In previous articles I drew readers' attention to Britain's railway mania of the 1840s that culminated in a very nasty depression when the boom collapsed. A striking episode in British economic history that exhibited the kinds of speculative activities, accounting shenanigans and hopeless optimism that marked the nineties hi-tech boom. And this instructive event has virtually disappeared from the pages of history, as if it was just one of those things that could not be avoided. The economic equivalent of a violent storm, so to speak.

The characteristics these booms shared are not a mere coincidence. Just as the money supply raced ahead under Greenspan in the 1990s, it exploded under the Bank of England in the 1840s. The Bank lowered its discount rate from 4 per cent to 2.5 per cent. The result was predictable. From the end of 1844 to about February 1946 its discounts rose from about £2 million to over £13 million pounds while bank credit jumped from $22 million to nearly £36 million. What we have here is a massive credit expansion in which discounts rocked by about 464 per cent and bank credits by 64 per cent, even though there was only a modest increase in the note issue thanks to Peel's 1844 Bank Act.

(By accepting the currency school error of denying that checking accounts are money Peel inadvertently allowed the Bank of England to circumvent the Act).

Now where did a most of this money go? Into hi-tech speculation, i.e., railway investment. More than £180 million were poured into railway schemes in 1845 and 1846, about twice the investment of the previous 10 years. Almost as if it were describing the 1990s The Economist painted a grim picture of the boom, contemptuously referring to

the folly, the avarice, the insufferable arrogance, the headlong, desperate, and unprincipled gambling and jobbing, which disgraced nobility and aristocracy, polluted senators and senate houses, contaminated merchants, manufacturers, and traders of all kinds, and threw a chilling blight for a time over honest plod and fair industry.

By September 1847 the boom was finished. Notice how The Economist described the inflationary spirit that, "contaminated merchants, manufacturers, and traders of all kinds"? Well, this brings us to Enron. The behaviour this company's executives were really the remnants of that speculative fever and "insufferable arrogance" that came to plague the 1990s.

The late Lionel Robbins, a British economist, was not the first to point out that booms create "a favourable atmosphere for the fraudulent operations of sharks and swindlers. The big frauds almost all have been perpetrated on a rising market." Robbins emphasised his point with a quote from Pope:

Blest paper credit. Last and best supply
To lend corruption lighter wings to fly

The '90s demonstrated that monetary booms are still highly corrosive of morals and ethical behaviour, a sad fact that is never going to change while men remain as they are. So will the US economy learn from history, meaning its central bankers and economic commentariat? No more than any other country, meaning not at all. There will be another recession and once again the market will charged with committing the dirty deed.