Sunday October 12, 6:02 pm 2008
William and Mary Historian Scott Nelson has had published an intriguing article in the Chronicle of Higher education which draws some striking parallels between the banking panic of 1873 and the subsequent depression and the current crisis.Both crises had their origins in a speculative mortgage financed bubble in housing which upon its collapse generated a wave of panic selling of assets and the freezing up of the inter bank lending systems. The article is available on the net and definitely worth reading although I think he gets certain details of the 1929 crisis a little wrong when he explores the driving forces behind it. But no matter it is a useful addition to our treasure chest of historical analysis to help us make better sense of what is going on right now. Of course ,the panic of 1873 and the resulting deep prolonged period of deflation was also not unknown to Maynard Keynes. In fact, it figured in an exchange of letters between Keynes and George Bernard Shaw over, in Shaw's view, Keynes' inability to recognize the historical contribution of Marx to the political economy of crisis theory. See Keynes Collected Works for details.
The critical difference between 1873 and now or 1929 and now is the fact that we have the historical lessons of those crises to draw knowledge from and a sophisticated central banking network and spending power which did not exist in the same depth then as now. Nevertheless , it is still critical that the world's political and economic leadership draw together and act decisively quickly to restore stability and confidence to the market place through both intervention, the injection of liquidity, further fiscal stimulus and moral suasion.Nothing in history is inevitable except our own personal mortality. Everything else can be altered by the force of our democratic will and the intelligence and quality and courage of decision taking by our policy leadership.
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