The Global Financial Crisis in Perspective

The Great Depression and Global Credit Crisis, Similarities

May 15, 2009

The Great Depression of 1929 is related to the current Financial Crisis in that both originated in the U.S and have damaged the world economy at a frightful scale

The cyclical theory of history posits that human activities revolve around a cycle. The same causes will always produce the same consequences. This perhaps, is the most agreeable point from which to begin any analysis of the similarities between the Great Depression of 1929 and the current Global Financial Crisis. The bottom line is the amount of havoc both crises have wrecked on the global economy in modern history.

War, the Great Depression and the Global Credit Crunch

The Great Depression of 1929 emerged from the ashes of the First World War whose cost was evaluated at $337000.000.000 by British economist and statistician Edgar Grammond. This level of devastation prompted British historian A. J. P Taylor to remark that “the civilized men of the 20th century had outdone in savagery the barbarians of all preceding ages.” In Taylor’s view, “European civilization had been weighed in the balance and found wanting.”

The same mistake of history, the same manifestation of savagery was repeated at the dawn of the 21st century with America’s invasion of Iraq in 2003. In 2008, Linda J. Bilmes and Joseph E. Stiglitz of the Washington Post estimated the total cost of this war at $3 trillion “and more.” In their words, “The Iraq adventure has seriously weakened the U.S. economy, whose woes now go far beyond loose mortgage lending.”

When considering that this figure does not involve the war in Afghanistan then it is easy to understand the depth of the present crisis. “Iraq is not only the second longest war in US history (after Vietnam), it is also the second most costly – surpassed only by World War II,” said Bilmes and Stiglitz. The upsurge of terrorism after the Iraq invasion is a product of this war which cannot be calculated in monetary terms.

Economic Crises and World Peace

One direct outcome of the Great Depression was the rise of dictatorship in Europe with guidance from Nazi Germany. In the words of British historian Peter Calvocoressi, the First World War created a situation where “nation protected itself against nation --- class turned against class --- and nowhere was the confusion and disruption more evident than in Germany.” He lamented, “Among those who gained was Hitler.”

The Nazi dictator’s rise to power condemned Europe to many more years of carnage and butchery. The Second World War which ran from 1939 to 1945 once again confirmed what Taylor had feared about the First World War, “that western people despite their extraordinary accomplishments were never more than a step or two away from barbarism.”

Today’s equivalence of fascist barbarism is terrorism. Though built on religious fundamentalism, its economic roots are very deep and strong. It feeds on economic frustration and draws its supporters from the poorest parts of the world. Its enemies are the West in general and America in particular. When Bin Laden hit the World Trade Center in 2001, he was striking a deadly blow at the heart of American (and western) capitalism.

Both the 1929 depression and the current Credit Crunch owe their origins to the U.S. The Great depression emerged from the prosperity that America had enjoyed after World War 1. America left this war richer than it had entered it due to the sale of weapons to belligerent Europe. This prosperity, however, ended with the collapse of Wall Street in October 1929. Its effects soon spread to the rest of the world and America itself was only saved by the New Deal policy of President Franklin Delano Roosevelt.

Talking about the current financial crisis in his inaugural speech, President Obama blamed it on “greed and irresponsibility on the part of some.” It is very clear that Obama’s predecessor – former President George W. Bush had embarked on a very aggressive and costly foreign policy. “You cannot spend $3trillion --- on a failed war abroad and not feel the pain at home,” said Bilmes and Stiglitz.

Though both the Great Depression and the current financial crisis trace their roots to America, it may take more than America’s efforts to solve the present crisis. This is because the age of uni-polarism is nearing its end. Terrorism is also growing in size and strength and new economic powers like China are entering the scene. Collective action and dialogue are the only ways to prevent the current crisis from spinning out of control.

Bilmes, Linda J. and Joseph Spiglitz. “The Iraq War Will Cost Us $3 Trillion and More,” The Washington Post, March 9, 2008.

Calvocoressi, Peter and Guy Wint. Total War: Causes and Courses of the Second world War, 1972.

Perry, Marvin et al. Western Civilization, Ideas, Politics and Society vol. 11, 1989.

The copyright of the article The Global Financial Crisis in Perspective in Modern US History is owned by Tongkeh Joseph Fowale. Permission to republish The Global Financial Crisis in Perspective in print or online must be granted by the author in writing.