The Witch of Worcester

MSN UK homepage editor Ian Jones wonders if some of the apocalyptic language being applied to the present turbulence on the world’s stock markets is a little out of place.

The dramatic economic events of the last few weeks have prompted a number of newspaper columnists to alight upon one particular historical motif.

‘We are now unquestionably in the worst financial crisis since the Great Depression,’ wrote Anatole Kaletsky in The Times. Jeremy Warner of the Independent dubbed it ‘unambiguously the worst financial crisis since the Great Depression.’ Peter Koenig of the Telegraph preferred simply ‘the worst financial panic since the Great Depression’.

But were they reaching for their history books, or rather just a lazy cliché? Larry Elliott of the Guardian noted that ‘culturally, America is fixated by the Great Depression. When it appeared Goldman Sachs could itself fall victim, the US Treasury saw lurid images of dole queues and soup kitchens.’ Might the British media also be fixated by the same thing? Is the Great Depression, which began in 1929, a useful comparison to drop into coverage of the current financial crisis?

‘They hollered and screamed’

Drawing parallels with the past in order to better understand the present is part of a historian’s trade. Those parallels need to be rooted in fact, however, or else the resulting conclusions may do more harm than good.

Fear of what might come is very different from fear of what is going on before your eyes. The panic of city bankers watching vast sums of money evaporating on their computer screens is genuine. The panic that is implied in talk of another Great Depression is not.

‘They roared like a lot of lions and tigers. They hollered and screamed, they clawed at one another’s collars.’ Those are the words of an eyewitness at one of the trading floors of Wall Street on ‘Black Tuesday’, 29 October 1929.

His description of the primal panic that had infested America’s stock market has no parallel today. And so far as it is known, none of today’s traders have yet tried to commit suicide, there and then, on any dealing room floor, or ’stayed in the office a week without going home’, or rushed out into the street yelling: ‘I’m sold out! Sold out! Out!’

‘The business of America is business’ 

What became known as the Great Depression began that day and by 1931 had encircled the globe. It took root in every country in three sequential stages. First came a stock market collapse. Second, unemployment. And third, widespread (and often total) bank failure.

America set the pattern. An unregulated boom had raged for much of the 1920s. ‘The business of America is business’ declared President Calvin Coolidge. Speculation on the stock market became fashionable among both the well-off and the middle class, and soon vast notional sums were being exchanged. Investment was also encouraged, especially abroad. Wall Street indulged in some spectacular acts of folly, a typical example being when it agreed to assist a Bavarian village which needed $125,000 to build a swimming pool, and ended up spending three million.

When, one day, the buying turned – almost on a whim – to selling, the bubble burst. Black Tuesday was the culmination of almost a week of mania. 16,383,700 shares were sold in one day, at a loss of $10,000,000,000: twice the amount of currency in circulation in the entire country at the time. In the words of historian Hugh Brogan, ‘it was as if the whole fabric of modern, business, industrial America was unravelling’.

How enlightened Bush sounds

Nobody stepped in to help out, least of all the government. They didn’t know how. And they didn’t think they should. The prevailing doctrine of the day was: hands off. The market is no place for intervention. How enlightened George Bush’s words sound in this context (’government intervention is not only warranted, it is essential’) especially considering what happened next.

Credit dried up (and here there some valid parallels with today). A scramble for currency – real money – took hold, and the cutbacks and lay-offs began. Unemployment in the US went up from 1.5m in 1929 to 5m by the end of 1930, and 13m by the end of 1932. The climax was a plague of bank closures, resulting in the introduction of the ‘bank holiday’: periods where nobody was allowed to withdraw money out of any bank anywhere.

By this point, in 1933, such were America’s trading links with the rest of the world that the entire planet was suffering. In the UK unemployment had doubled in 12 months and two million were out of work. Five million were unemployed in Germany. But still nobody did anything. And here is where the historian’s default reaction, to sound notes of caution, kicks in.

The most potent damage wrought by the Great Depression was in those three years following the Wall Street Crash. The consequences of the stock market slump were more toxic than the slump itself. And it was the inability of people in positions of power to arrest those consequences that led to mass poverty, starvation and homelessness and, in places like Japan, Germany and Italy, political extremism of the most appalling far-right kind.

History is not repeating itself

Today, here and now, people have acted. Lessons learned in the aftermath of 1929 are still being heeded almost 100 years later. Politicians from across the ideological canvas are stepping up. Unemployment on a similar scale to the early 1930s and total bank failure will not be permitted. We should be heartened, not hidebound.

The debate over the cause of the Great Depression, like the debate over the cause of the current events, will persist as long as human beings have the capacity to hold different points of view. But history is not repeating itself. And we certainly don’t know if this is the worst crisis since the Great Depression. We won’t know for many years.

What we do know is that other crises have exacted similarly profound consequences as that of 1929, and stand claim to be just as significant turning points in history: the post-war slump that almost bankrupted western Europe, for instance, or the oil shortages of the 1970s that generated soaring inflation around the world, or the recession of the early 1980s that sent unemployment in the UK over 3m.

We also know that it took a new President of the United States to save his country and by extension the rest of the planet from economic breakdown. ‘The only thing we have to fear is fear itself,’ declared Frankin D Roosevelt on the occasion of his inauguration in 1933, ‘nameless, unreasoning, unjustified terror which paralyses needed efforts to convert retreat into advance.’

There can’t be many who wouldn’t welcome a man of similar vision and courage into the White House this winter.”

…..And let’s hope the respite provided by the Jewish New Year has helped clarify the scope of immediate US Government intervention in their economy.