Today I've started reading Lords of Finance: The Bankers Who Broke the World by Liaquat Ahamed. This is an economic history of the great Western powers from 1914 to 1931. Its subjects are the bankers who rode out World War I, soared high in the 1920s, and whose very names were just about erased from common histories by the horrible collapse in the Great Depression. Ahamed worked as an economist for the World Bank, then spent twenty-five years as a professional investment manager in London and New York.
In the very first chapter, I was struck by this, written in October 2008:
[My emphasis.] Financiers claim to be peddling arcane knowledge of economic trends based on ever more complex computer modeling -- but perhaps their expertise is just the guesses of persuasive salesmen, a few offering real value and others just snake oil.
This brought to mind James Surowiecki's observations about what is apparently a current Argentine coin crisis. Simply put, there's hardly any small change in Buenos Aires. Why? Because Argentines have been through repeated episodes of inflation, including a hyperinflation when money became almost worthless, and they take rational measures to ward off being wiped out again. People hoard coins because they think the metals in them are more likely to retain value than paper money -- and because they think other people must be hoarding coins.
Surowiecki generalizes about this behavior:
This bit of economic reporting seems far too sunny to me. Millions of us -- most of us -- have lost much in savings whether in home values or in securities. Maybe in time some of that wealth can be rebuilt, but, except for the very rich, our futures have been forever altered by the wipe out. Individually we don't have "too much cash," even if the financial system may be paralyzed by fear that is choking off credit.
Ahamed and Surowiecki are not original in pointing to "confidence" as the lubricant that could get the wheels of economic life turning again. Make your day by viewing this Depression era cartoon with the same message. I guarantee you'll smile. [7:42]
H/t Suburban Guerilla.