called it ‘The Noble Experiment’ – was ultimately unsuccessful. Illegal bars, ‘speakeasys’, mushroomed in their thousands and, as with the modern drug trade, gangsters cashed in on the high profits to be made from illegal but much-wanted goods. In 1929 an economic theorist and writer called Ralph Borsodi inveighed against the way of life that America had adopted in a book called This Ugly Civilisation. ‘America,’ he wailed, ‘is a respecter of things only, and time – why time is only something to be killed, or butchered into things which can be bought and sold.’ Borsodi came from a family of Hungarian immigrants – one of millions that had been attracted to America because of its freedom, particularly its wide, open spaces. For men like him, the nation’s founding fathers had been people who combined qualities of intellectual strength, physical vigour and a belief in the land – virtues that were being strangled in a jungle of greed.
The consumer the spender – was to be the agent of renewal.
America, happy and free in its new motor car, was not to be sidetracked. Even when its economy went into severe decline from 1929 as a result of the worldwide depression, the role of the new consumer was actually strengthened rather than weakened. President Roosevelt’s ‘New Deal’, the economic legislation designed to resurrect the nation’s fortunes, provided for consumers to participate in the new authorities he created in order to encourage industrial and financial reform. In the election campaign that first brought him to power he announced that: ‘I believe we are at the threshold of a fundamental change in our popular economic thought, that in the future we are going to think less about the producer and more about the consumer.’ The consumer – the spender – was to be the agent of renewal. The irony was that Henry Ford, who did more than anyone to create the acquisitive citizen whose willingness to spend lay at the heart of economic reconstruction, disliked the idea of government involvement in business and never supported Roosevelt’s reforms.
The Model T Ford was by some accounts an exasperating car to own. Its popular name was the ‘Tin Lizzie’ and as E. B. White recalled in the New Yorker magazine: ‘The lore and legend that governed the Ford were boundless. Owners had their own theories about everything; they discussed mutual problems in that wise, infinitely resourceful way old women discuss rheumatism.’ Cantankerous, strange, cheap and constantly available, it became a fixture of the American way of life – a symbol of wealth that everyone could aspire to own.
In 2007 the world’s financial markets began to face serious problems as owners of houses in America began to default on their loans. It became clear that banks all over the world had extended credit unwisely and were about to collapse. This, combined with a general market recession, created the most serious global economic crisis for nearly a century. It became known as the Credit Crunch.
It is with some caution that I decided to include the Credit Crunch in this book. When in the future people look back at the first years of the twenty-first century, the world’s economic problems that began in 2007 may not appear particularly significant. But for those who have lived and are living through them they represent a moment of reckoning. The Credit Crunch brought to a shuddering halt a cycle of prosperity and growth that had lasted, with one brief interlude, for more than thirty years. It seemed unstoppable and its sudden end sent waves of fear and panic round the world. As fear subsided it was replaced by sober reflection. Many people, particularly in the West, began to reassess their attitudes towards individual wealth. The chief executive of the Royal Bank of Scotland that lost more than £24 billion in 2008 – the biggest in Britain’s corporate history – was urged to relinquish part of his pension as the public mood turned against the big salaries and bonuses earned by senior managers.
Waves of fear and panic went round the world.
In 2009, in a BBC Reith Lecture, an American political philosopher argued that it was time that the self-interest of the individual was replaced by what he called ‘a new politics for the common good’. It is still too early to say whether these agonies of conscience have made a long-term difference to the way men and women behave. In part they are simply the result of the anxiety people always feel during a period of economic decline when wages and profits are falling, concerns that tend to evaporate once growth and prosperity return. That is why the Credit Crunch is important. Whether it was just another blip in the economic cycle, or something far more, only time will tell.
‘Banking,’ said Walter Bagehot, ‘is a watchful but not laborious trade.’
In 1873 the banker, journalist and author Walter Bagehot published a book about banking in Britain called Lombard Street. Britain was then the richest country in the world, its money markets a global hub for credit and exchange. Bagehot was a shrewd and lucid observer of British public life. ‘Banking,’ he said, ‘is a watchful but not a laborious trade.’ Watchfulness, however, had not been much in evidence in a recent banking scandal. In 1866 a private bank called Overend, Gurney & Company, collapsed. It had over-extended its lending and had invested heavily in the surging growth of the railways. When the market weakened it found itself unable to meet its liabilities. ‘In a short time,’ remarked Bagehot, its managers had ‘substituted ruin for prosperity and changed opulence into insolvency.’ Other banks followed Overend, Gurney & Co. into liquidation and a variety of companies also failed as the credit crisis took its toll on the country’s economy. The directors of Overend, Gurney & Co. asked the Bank of England for help, but were refused. They were eventually tried for fraud at the Old Bailey, though the court found them guilty of ‘a grave error’ rather than a crime. Twenty-four years later, in 1890, the bank of Baring Brothers nearly collapsed because of unwise investments it made in Argentina. This time the Bank of England did step in, averting a crisis that might have brought the whole of the British banking system to its knees. Bagehot had proposed this course of action: he believed the Bank of England should be used as a central bank whose reserves could help other banks and businesses weather the difficulties of the economic cycle.
These dramatic events shook the confidence of Britain’s powerful commercial interests, but they made few long-term differences to the way people behaved. Britain in 1900 was very similar to Britain in 1870 and its Prime Minister, the Marquess of Salisbury, a typical product of the grand Victorian world – aloof, patrician and suspicious of democratic change.
But by the time the next crisis arose, thirty years into the twentieth century, the situation had changed dramatically. As with the Credit Crunch, the Great Depression of the 1930s began in America when the country’s stock market crashed in 1929. Although America had enjoyed a period of booming economic growth, there was still a wide division between rich and poor. The rich pumped their surplus cash into speculative stocks. When these failed not only they, but the poor they had left behind, suffered terribly. This suffering, which spread into Europe and the rest of the world, meant that the Great Depression had enormous political consequences. In America, President Roosevelt’s New Deal introduced fierce banking regulations, farm subsidies and a more inclusive approach to many aspects of the economy. In Britain, Prime Minister Ramsay MacDonald formed a National Government to try to cope with the crisis. In Germany and Italy, Hitler and Mussolini used economic misfortune to strengthen their call for vigorous anti-democratic measures. The Great Depression did not create fascism, but it certainly helped.
Further afield the freedom movements that had begun to develop in the colonial territories of the great powers pointed to economic misery as the inevitable legacy of selfish, wealth-obsessed masters. The man who would become the first Prime Minister of an independent India, Jawaharlal Nehru, said in a speech in 1929: ‘Our economic programme must … be based on a human outlook and must not sacrifice man to money.’ In Brazil, where growing prosperity suddenly began to decline, Getulio Vargas, one of the country’s most influential leaders in the whole of the twentieth century, seized power in 1930 and became known as ‘The Father of the Poor’. Economic turmoil had a global impact. At the end of the nineteenth century,