When the Depression of 1890 began, newspapers were reporting a huge increase in corruption. Shiller and Akerlof did a good job in researching the era:
“In order to understand this it is necessary to bear in mind that the ordinary embezzlement is sudden only in its finality. It is a gradual process till near the end, like the wearing away of land that forms the bank of a river. It begins with the abstraction of a little by a man who would be horror-struck at the thought of not putting back what he is taking. He ventures that usually in some kind of speculation akin to gambling or in an out-and-out gambling operation–and loses.”
“He takes more in the hope of being able to recover the first sum, loses again, and plunges deeper and deeper. At last he becomes reckless under the dissipation which almost always accompanies the embezzling process. He still would like to retain the good opinion of the world, but the time arrives when he has so far that it is a question of restitution or exposure, the restitution cannot be made without another abstraction, and the loss of that brings the collapse. The business conditions of last year favored a great deal of that kind of outcome to speculations previously begun.”
Chicago Daily Tribune
January 1, 1895
Source: “Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters For Global Capitalism” – George A. Akerlof and Robert J. Shiller (Princeton University Press)
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