The brilliant UCLA historian, Eugen Weber, said, "If history were written by cats, the events of history would revolve very much upon the actions of cats."
Niall Ferguson is a historian of "modern imperialism" so its not surprising that he believes that history and economics is merely a byproduct of empires. Expressed another way, "when you're a hammer everything looks like a nail".
Any economist would laugh uproariously at his proposed explanation of the Great Depression. While the fear of the coming of World War I upset financial markets for a few weeks, this was in no way connected to the Great Depression 15 years later.
But the war did have an effect. It wildly pushed up the price of commodities and other components of war production. This created massive investments to produce more of the same, which became nearly worthless at the end of the war as the price of commodities and other goods collapsed. Economists call this mal-investment - which results in a huge destruction of capital.
As today, many central bankers of the time mistakenly believed
that the lost capital could be replaced with additional currency and debt. They discovered this only created a worse problem, as we will learn again today.
As Harvard economist, Joseph Schumpeter, said of this time,
"Policy does not allow a choice between depression and no depression, but between depression now and a worse depression later.
Inflation pushed far enough would undoubtedly turn depression into the sham prosperity so familiar from European postwar (WW-I) experience, and would, in the end, lead to a collapse worse than the one it was called in to remedy.
For recovery is sound only if it does come of itself. For any revival which is merely due to artificial stimulus leaves part of the work of depressions undone and adds, to an undigested remnant of maladjustment, new maladjustment of its own which has to be liquidated in turn, thus threatening business with another worse crisis ahead."
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