For the closest parallel to the current financial panic . . . go back to 1873

Scott Reynolds Nelson, a professor of history at the College of William and Mary, has written an intriguing paper that urges analysts to abandon the idea that the current financial panic is most closely parallel to the Great Depression.

According to most historians and economists, that depression had more to do with over-large factory inventories, a stock-market crash, and Germany's inability to pay back war debts, which then led to continuing strain on British gold reserves. None of those factors is really an issue now.

Contemporary industries have very sensitive controls for trimming production as consumption declines; our current stock-market dip followed bank problems that emerged more than a year ago; and there are no serious international problems with gold reserves, simply because banks no longer peg their lending to them.

In fact, the current economic woes look a lot like what my 96-year-old grandmother still calls "the real Great Depression." She pinched pennies in the 1930s, but she says that times were not nearly so bad as the depression her grandparents went through. That crash came in 1873 and lasted more than four years. It looks much more like our current crisis.

I found the details Nelson puts forward quite fascinating . . . and I appreciate having my financial time horizon pushed back another 60 years.

Check out The Real Great Depression in The Chronicle of Higher Education, "The Chronicle Review" for October 17, 2008: Volume 55, Issue 8, Page B98.