Then, as today, societies were uncertain about which model of society to strive for and how to repair monetary systems. Societies bet on the wrong ideas; we may be committing similar mistakes now

The 1930s All Over Again?

By Reuven Brenner

Many people draw parallels between today and the 1930s, labeling this the Great Recession. They note the high unemployment rate, referring not to the mismeasured, official statistic, but to the number more than double that rate, which also accounts for those who dropped out from the labor force and are no longer counted as “unemployed.” Others worry about the deflationary risk, the dollar devaluation, and the status of the U.S. dollar as reserve currency. Still others worry that the “vital few” — those with high scientific aptitudes and entrepreneurial drive — no longer come to or stay in the United States, but stay in or go back to the many countries whose Iron Curtains have been punctured since 1989.

Yet the most worrying parallel with the 1930s is one that is not discussed. Then, as today, societies were uncertain about the model of society they should strive for and about how to repair domestic and international monetary systems after wildly varying expansions of credit during and after World War I in the different countries. In addressing these two questions, societies ended up betting on the wrong ideas, which had long-term, disastrous consequences. We may be committing similar mistakes now.

Recall the 1920s and 1930s: Germany, Hungary, Austria, and Italy all destroyed their middle classes and financial markets with hyperinflation — a destruction that has always been a recipe for both political instability and predictable centralization of power. After all, once financial markets are destroyed, even if inadvertently, governments and central banks become financial intermediaries — by default.
.............

Read more: www.american.com