How have economic crises throughout history shaped the relationships between nations? Which crises had a hand in wars and major global conflicts?

Harold James is a professor of history and international affairs at Princeton University. His recent book, Seven Crashes: The Economic Crises That Shaped Globalization examines major economic upheavals from the 1840s to modern day.

Greg and Harold chat about the concept of a crisis and its evolution, the delicate nature of interconnected economies, and how the World Wars contributed to hyperinflation or exchange rate stability and continue to impact economic policy today.

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From isolation to innovation lessons from the 1840s and 1970s

41:07: In the longer run, it seems to me that the pattern that I saw in the 1840s and the 1970s, that the longer-term reaction to a supply shock is actually to open up more. And the 1970s had exactly that. First of all, it's turning inward to the thinking that we can do it ourselves in all the big economies. And then an awareness that the most successful economies had actually not done that, turning in on themselves, but had remained open and had allowed themselves, as a consequence, to innovate.

The 1840s crisis paves the way for a new era

04:05: The crisis of the 1840s generated something in the 1850s that brought the world into a new era, and it's really an era where the Marxist diagnosis gets less and less appropriate.

Understanding demand and supply shocks

27:50: The 2008 shock was really best thought of as a negative demand shock that was the consequence of a financial panic, a contagious financial panic. The 2020 shock was a negative supply shock. It has analogies with previous negative supply shocks, but can't be handled in the way that you deal with the absence of a demand shock in the wake of a financial crisis. So the way in which people might have dealt more effectively with the Great Depression and did deal quite effectively with the Great Financial Crisis, the Great Recession, whatever you like to call the 2008 story. And so the fiscal stabilization is much bigger in 2020 than it was in 2008, but really inappropriately so. So it pushes more inflation in these moments of demand shocks. You just want more demand. When it's a supply shock, you need a specific kind of good or commodity.

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