History and Financial Crises: Lessons from the 20th Century

history_financial_crisisChristopher Kobrak y Mira Wilkins (eds.)
History and Financial Crises: Lessons from the 20th Century
New York: Routledge, 2013
ISBN: 978-0-415-62297-4
Páginas: 183
Precio: 140 $

Sinopsis
Reviewed by Jon Moen, Department of Economics, University of Mississippi.
This book is a collection of six papers that were originally published as a special issue of Business History (Volume 53, Issue 2, April 2011). It includes a new summary chapter on the use of history in understanding modern financial crises. Two themes tied the original collection together: the roles of globalization and regulation in financial crises. Because of the five papers chosen, the collection focuses on the 1920s and 30s. The papers cover the experiences of the German, Swedish, British, Canadian, and U.S. financial and banking sectors just before and during the Great Depression. Individually, the five papers draw useful lessons from historical episodes of financial crises, and I enjoyed reading them. Because they were subject to careful peer-review, I will not review them individually. Instead, I will review the effectiveness of the collection as a whole.

The original introductory essay and the new concluding essay distract from the five papers; they do not clearly make a case for why I should read them as a collection. The introductory essay by Christopher Kobrak and Mira Wilkins starts with an extended discussion on the definition of a financial crisis. It acknowledges Charles Kindleberger’s (2011) self-confessed inability to define a crisis and notes attempts to define a crisis on the basis of sudden movements in interest rates or the money supply. Yet it ends quite unsatisfyingly with “no absolute definition of either financial or economic crisis” (p. 5). Later the essay apologizes for ultimately choosing a set of papers that are limited to the twentieth century, with an emphasis on the Great Depression (p. 10). That is not bad, but the apology diminishes what the five essays do offer, as noted carefully in the next few pages. One important point that the essay points out, however, is that not all crises covered in the special issue resulted in a collapse in demand and prices (p. 15). Why crises do not inevitably lead to recessions or worse could be examined more.

The new, concluding essay by Christopher Kobrak is problematic. As a stand-alone essay, I found it to be a potentially compelling survey of the relationship between financial and banking panics and the perils of making casual historical comparisons. In particular, highlighting the relevance of the banking crises of the early 1930s rather than the spectacular stock market crash of 1929 helps in making historical comparisons with the crisis that started in 2008. But then the essay veers off into topics that are again distracting, like musing on the loss of governmental discipline from the collapse of the Bretton Woods Agreement (p. 119). This is odd, as the introductory essay indicates that the paper by Mark Billings and Forrest Capie emphasizes the benefits of flexible exchange rates. The author then regrets not having an essay or more discussion of the Bank Panic of 1907, stating that it gets “little press in financial histories” (p. 120) and then proceeds to write several pages on the Panic. I have found quite a bit about 1907 in financial histories by Milton Friedman and Anna Schwartz (1963), Gary Gorton (2010), Richard Timberlake (1993), and Elmus Wicker (2000), just to name a few. I may have contributed something myself. The section on regulation (p. 123) starts out well, noting how historically regulation has always been trying to play catch-up to financial innovation. But the subsequent discussion of the breakdown in Bretton Woods again doesn’t seem closely related to the papers of the special issue. The discussion of “Good Financial Crises” argues that crises that were successfully averted rarely get examined. Wicker clearly points out that the New York Clearing House successfully dealt with the Panic of 1873, and he refers to the reactions to the Panics of 1884 and 1890 as success stories from the point of view of the Clearing House. I mention this because there is a lot of historical analysis of specific panics out there that could have been tied into this essay.

The conclusion to the essay left me a bit puzzled. Certainly financial markets are much more complicated today than, say, in 1907. But is this the result of an increasing lack of social responsibility on the part of financiers today? We are asked to compare today’s leaders with those of 1907, who “stepped in to save a system from problems they themselves had created” (p. 131). Whatever those problems were, I have a hard time imagining that saving his own skin was not first and foremost in J.P. Morgan’s mind, an incentive that just happened to be compatible with that of New York’s financial market in general. Nevertheless, read the special issue or the book for the all of the essays. Just do not expect to find a lot of lessons.

References:

Friedman, Milton, and Anna J. Schwartz. A Monetary History of the United States, 1867-1960.
Princeton, NJ: University Press, 1963.

Gorton, Gary. Slapped by the Invisible Hand: The Panic of 2007.
Oxford: Oxford University Press, 2010.

Kindleberger, Charles. Manias, Panics, and Crashes: A History of Financial Crises, 6th edition.
New York: Palgrave Macmillan, 2011.

Timberlake, Richard. Monetary Policy in the United States: An Intellectual and Institutional History. Chicago: University of Chicago Press, 1993.

Wicker, Elmus. Banking Panics of the Gilded Age.
Cambridge: Cambridge University Press, 2000.

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