History gives a comforting sense of proportion.
If this cash crisis seems insoluble, reflect that there were
eleven bigger crises in the 19th century alone – and that was
a century of unparalleled growth and prosperity.
Most of those crises are now forgotten by all but economic
historians. In almost every case, a period of excessive growth was followed by
a slowdown, but then the powerful force that is human enterprise reasserted
itself and growth resumed.
It is the exception that everyone remembers – the Great
Depression, when governments around the world did not wait for enterprise to do
its healing work but prolonged the pain by well-meant interference: tariffs
shut down global trade, and increased state spending meant higher taxes and
deficits. Politicians, take warning.
Yet there are other past crises from which we can learn, all
of them – so far – much more dangerous than the one in which we now find
Mania, 1637. Cause: excessive
speculation in tulip futures – honestly! Resolution:
the Netherlands passed strict regulations on futures trading – although, by
that point, everyone realised that the whole thing had been rather silly...
Darien Scheme, 1698. Cause: most
of the hard cash in Scotland was lost in a disastrous colonial expedition. Resolution: Scotland’s Parliament
consented to a merger with England on favourable financial terms.
3 The South Sea Bubble,
1720. Cause: over-valuation of
stocks in Britain’s South Sea Company. Resolution:
the British government basically nationalised the “toxic debt” – but, less
generous than today’s governments, also confiscated the estates of the Company’s
4 The Mississippi
Company, 1721. Cause: a French
version of the British South Sea Bubble. Resolution:
the French government established a national lottery – but the Company’s losses
still added to the excessive state spending that eventually triggered the
5 The Panic of 1797. Cause: world markets were frightened
when it looked as if the British might be beaten by the French – who had
Napoleon. Resolution: in accordance
with tradition, the French were soundly and quite properly beaten by the
British – who had Nelson. Hurrah!
Austerity, 1949. Cause: Britain
simultaneously gave up captive markets in India, nationalised key industries,
established an expensive welfare state, and had to pay huge war debts to the Americans.
Resolution: for thirty years, until
the Thatcher Administration, Britain, in the words of a German Chancellor, continued
to live like a millionaire who lost all his money but did not realise it.
7 OPEC Crisis, 1973. Cause: the West panicked when Arab
states asserted their new economic power. Resolution:
since then, the Arabs have been investing a lot of their oil profits in the
West – to the great satisfaction of both sides!
This too shall pass.