Puzzles from the First Globalization

Abstract

In the first globalization, 1870-1914, as in our own times, debates raged over the impact on domestic life of free movement across borders of goods, people, and capital. Then as today in the hard times that have followed in the wake of financial crisis, many saw that open borders brought uncontrollable risks and vulnerabilities. Even a hundred years ago, without benefit of sophisticated statistical analysis, it was generally understood that cross-border capital flows greatly increased the potential for crisis as the troubles of other financial markets poured in unimpeded by national controls, and financial market distress turned into credit blockages to the real economy (Stevens 1894). As The Economist wrote about the 1907 New York banking crisis: “ The fact seems to be that when a sudden collapse of speculation is accompanied by a banking panic, all the machinery of a great modern industrial society goes out of gear. Even in the vast territory of the United States, with all its diversities of soil, climate, industry, agriculture, and even law, the network of railways is so complete, and interchange of commodities and credit so intimate and complex, that every part seems to be dependent on some other part, while all are related more or less closely in a common dependence upon their great financial metropolis---New York” (The Economist, 1907).