Financial Crises in the 1890s and the 1990s: Must History Repeat?

Thus it is here that economic history can be useful. For ours is not the first age of large-scale international capital flows, or of virulent international financial crises. We today live in what we might well call the second age of globalization. The first took place during the half-century before World War I, when free trade, free flows of capital, free migration, and the classical gold standard all gained increasing strength, and falling transport and communications costs knit the world economy together and fueled rapid growth up until the disaster of the world war.
In this first era of globalization there was no IMF. There was little exchange rate variability (or at any rate far less than the world has seen recently). And financial market organization, as measured by the absence of corruption and of “crony capitalism,” was certainly no better than it is today. Capital flows then were as large as capital flows are now relative to the size of their economies. And these flows were accompanied by frequent international financial crises: in the case of the United States, about once every eight years.

J. Bradford Delong

Brookings Institution

Spring 1999

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