Should Banking be Left to the Bankers? A Comparison of the Great Depression and the Great Financial Crisis

Abstract

G.K. Chesterton wrote ‘The Secret People’ in 1915, but his words also express the despair felt by the unemployed in the 1930s, struggling against events outside their control. "They fight us by shuffling papers; they have bright dead alien eyes; And they look on our labour and laughter as a tired man looks at flies. And the load of their loveless pity is worse than the ancient wrongs; Their doors are shut in the evening: and they know no songs." Unfeeling central bankers and economic theorists dictated monetary policy in the 1930s, confident in their belief that ‘the market is always right’. Any attempt to control financial markets or fiscal policy was anathema, as wild speculation on Wall Street went unchecked. This paper examines the events of the 1930s in Australia, and the way in which bankers in Australia were manipulated by British financial interests in general and the Bank of England in particular. In 2007 and 2008, the Great Financial Crisis (GFC) was a reminder of the Great Depression and the years of unemployment and social unrest; the policies of the econocrats who had boasted that the Great Crash of 1929 could never happen again were proved wrong. It is the aim of this paper to show that history can’t be ignored, that the interests of powerful financial institutions need to be controlled. It is an attempt to understand the mistakes made in Australia in the 1930s, in order to ensure that prudent management and effective regulation will be the way of the future.