History of Financial Disasters, 1763-1995 (review)

In a History of Financial Disasters, Stefan Altorfer has assembled a collection of contemporary accounts and journal articles to examine the history of financial crises since the eighteenth century. The collection is divided into three volumes with each chapter devoted to one financial crisis. The first volume examines important financial disasters prior to 1850, including early European financial crises in 1763 and 1772–73, and the Assignat Inflation during the French Revolution. This is followed by a discussion of the 1918–1919 crisis of the Second Bank of the United States, the London Crisis of 1825, the Panic of 1837, and the British Railway Mania of 1847. Volume 2 examines important financial crises from 1850 until the outbreak of the Great Depression, notably the Ohio Life Crisis of 1857, the Overend & Gurney Crisis, Black Friday in New York, the Vienna Crisis of 1873, the Panic of 1907, and the German hyperinflation. The final volume includes a study of the 1929 stock market crash and the Great Depression, the devaluation of the sterling in 1967, the U.S. stock market crash in 1987, Black Wednesday, and the Mexican Peso Crisis. Altorfer begins each chapter with a brief summary of the crisis, which is followed by a collection of contemporary accounts and select journal articles that summarize and highlight some of the key events of each financial crisis.

In general, Altorfer has selected appropriate contemporary and modern articles for the collection. For example, the analysis of the 1825 financial crisis includes contemporary articles from Gentleman's Magazine as well as statements by officials at the Bank of England. The discussion of the 1825 financial crisis concludes with a journal article by Larry Neal on the role of asymmetric information in the rise and collapse of Latin American securities during the crisis. The study of the 1837 financial crisis reprints letters from Nicholas Biddle, President of the Second Bank of the United States, a description of the crisis from Niles' Weekly Register, the Specie Circular, and recent work by Peter Rousseau on the subject. The chapter on the 1929 stock market crash includes the text of the Banking Act of 1933, the Securities Exchange Act of 1934, and John Kenneth Galbraith's history of the collapse.

One of the major shortcomings of the three-volume collection is the editor's selection of financial crises. For example, the Baring Crisis of 1890 is not included in the collection while other less important financial disasters, such as Black Friday in New York and the Ohio Life crisis, are included in the collection. The Baring Crisis is widely recognized as one of the most important crises in modern history. The Bank of England, in conjunction with several financial institutions in London and Europe, created a rescue fund to save the House of Baring, a troubled investment firm. The financial institution issued and sold millions of pounds in sovereign debt for Argentina during the 1880s on the London Stock Exchange, but ran into trouble when Argentina defaulted on its debt obligations in 1890. Many modern scholars believe that the Bank of England averted a more widespread financial crisis by providing rescue funds for the House of Baring. The response by the Bank of England provides an early example of how central banks can act as a lender-of-last resort during a financial crisis. The author could have included some primary source documents from the House of Baring or the House of Rothschild for background on the crisis, in addition to a well-known article by Barry Eichengreen (The Baring Crisis in a Mexican Mirror, 1997).

Another shortcoming of the collection is the author's choice of articles that cover various aspects of the Panic of 1907. The author relies primarily on articles by Seligman, Venderlip, and other contemporary accounts. Altdorfer ignores more recent analyses of the crisis, which show that the San Francisco earthquake set off a chain of events that led to the financial...