The Past Speaks

Although he doesn’t use the term analogic-historical reasoning, Barry Eichengreen’s important new book Hall of Mirrors The Great Depression, The Great Recession, and the Uses-and Misuses-of History certainly adopts this approach. As I have said earlier, this book is important for anyone who teaches about finance, political economy, financial history, economic history, and so forth. There is tonnes of really good historical material in this book. For instance, I learned about Henry Ford’s pet bank and its place in the politics of bank bailouts in the early 1930s. But perhaps the most important part of the book isn’t the empirical data presented in it, but the author’s methodology, which is constitutive historicism, albeit without the label.

To hammer home this point, I’m going to reproduce the first paragraph of the conclusion of the book:

The historical past is a rich repository of analogies that shape perceptions and guide public policy decisions. Those analogies are especially influential in crises, where there is no time for reflection. They are particularly potent when so-called experts are unable to agree on a framework for careful analytic reasoning. They carry the most weight when there is a close correspondence between current events and an earlier historical episode. And they resonate most powerfully when an episode is a defining moment for a country and a society. For President Harry S. Truman, in deciding whether to intervene in Korea, the historical moment was Munich. For policymakers confronted in 2008-9 with the most serious financial crisis in eighty years, the moment was the Great Depression.

There is a lot going on in this paragraph, so let’s unpack it. Note how Eichengreen is here employing Daniel Kahneman’s distinction between thinking fast and thinking slow. Eichengreen isn’t saying that historical-analogic reasoning always has a massive influence on policymakers, merely that its influence is more pronounced during crises. Students of the making of US foreign policy were among the first group of social scientists to apply constitutive historicism as a research methodology (think of the classic book Analogies At War) and Eichengreen alludes to all of the earlier research in this area before applying the same basic approach to economic policymakers.

Eichengreen’s book shows how the lessons that economists and historians distilled from the Great Depression influenced policymakers before, during and after the 2008-9 financial crisis. Establishing that perceptions of history influenced policymakers during the crisis is, for a scholar of Eichengreen’s abilities, kind of like shooting fish in the barrel, since some of the key policymakers, most notably Ben Bernanke but also British Prime Minister Gordon Brown, had studied the Great Depression in their earlier academic careers. Moreover, these policymakers often used historical analogies to the Great Depression in their public pronouncements, as Eichengreen documents. All of these references to history are on the record and online for Eichengreen or any other researcher to use. As more and more documents created by policymakers during the financial crisis become available to researchers (e.g., as they are released to the public after the statutory term of years) we will be able to see from their private correspondence, FOMC transcripts, and emails how the key players used historical analogies when they were addressing each other, rather than a larger audience.

The challenge to business historians and other management academics who are interested in applying the constitutive historicism approach is to determine how and when decision-makers in the private sector use historical-analogic reasoning. Barry Eichengreen’s primary focus is on policymakers (e.g., policymakers and civil servants). The primary focus of academics in management schools is on decision-makers within companies. By using a different range of primary sources, we should be able to adapt Eichengreen’s constitutive historicism approach and then apply it to corporate actors. Looking at how Wall Street executives used historical-analogic reasoning during the crisis in the autumn of 2008 would seem to be a logical place to start. Another possible avenue of investigation would be to look at whether venture capitalists and others involved in the highly uncertain and unpredictable world of launching new companies use historical-analogic reasoning.