In 1931, as the European banking system seemed to be collapsing, the Austrian economist Joseph Schumpeter observed that people felt the ground giving way beneath them, and not merely those with bank accounts. Many in Britain and America must be experiencing similar tremors now. Yet, in Britain at least, there are huge differences between 1931 and today. The 1931 crisis had profound political consequences - it almost wrecked the Labour Party and established the extraordinary hegemony of Stanley Baldwin, Neville Chamberlain and the Conservative Party - but it was a balance-of-payments crisis that was resolved the moment Britain went off the gold standard and devalued the pound. Almost uniquely among major economies, Britain didn't experience a run on the banks or a threat to people's savings. No high street bank collapsed or was likely to. In so far as there was a nervous shifting of money it was from the banks to the building societies, whose golden age it introduced.

LRB 23 October 2008 | PDF Download