Hall of Mirrors: The Great Depression, the Great Recession, and the
Uses—and Misuses—of History. By Barry Eichengreen. New York:
Oxford University Press, 2015. vi + 512 pp. References, notes, index.
Cloth, $29.95. ISBN: 978-0-19-939200-1.
Reviewed by Per H. Hansen
Barry Eichengreen’s new book Hall of Mirrors is a detailed, excellent,
and somewhat pessimistic comparison of the two most serious ﬁnancial
crises ever—their causes, development, and consequences. Readers well
versed in the comprehensive literature on the Great Depression and the
Great Recession in the United States and Europe will not ﬁnd much in-
formation in Hall of Mirrors that is completely new, but most others will.
What is new is the comparative approach: the detailed and analytically
successful search for similarities and differences between the Great
Depression and the Great Recession.
Also, Eichengreen’s partial focus on the uses of history or historical
analogies is a promising step within the ﬁeld of economic history. Many
economic and ﬁnancial historians have argued that the fading of memo-
ries of the Great Depression contributed to the trend, since the 1980s, of
ﬁnancialization of the economy and society and to the ﬁnancial crisis and
It follows that understanding the role of memory in
economic history is important. However, the question of memory and
forgetting has never been at the top of the research agenda in economic
history. Eichengreen should be commended for addressing this impor-
Business History Review 89 (Autumn 2015): 557–569. doi:10.1017/S000768051500077X
© 2015 The President and Fellows of Harvard College. ISSN 0007-6805; 2044-768X (Web).
See, for instance, Tobias Straumann, “The UBS Crisis in Historical Perspective”(working
paper, Institute for Empirical Research in Economics, University of Zurich, 2010); Barry
Eichengreen, “The Great Detour: European Money and Banking in the Second Half of the
Twentieth Century,”in Bank Austria Creditanstalt: 150 Jahre Österreichische Bankenge-
schichte in Zentrum Europas, ed. Oliver Rathkolb, Theodor Venus, and Ulrike Zimmer
(Vienna, 2005); Youssef Cassis, “Banking and Finance in Europe since 1945,”in Perspectives
on European Economic and Social History, ed. Jan-Otmar Hesse, Christian Kleinschmidt,
Alfred Reckendrees, and Ray Stokes (Baden-Baden, 2014); David A. Moss, “Reversing the
Null: Regulation, Deregulation, and the Power of Ideas,”in Challenges to Business in the
Twenty-First Century, ed. Gerald Rosenfeld, Jay W. Lorsch, and Rakesh Khurana (Cambridge,
Mass., 2010); and Harold James, The Creation and Destruction of Value: The Globalization
Cycle (Cambridge, Mass., 2009).
Memories of the Great Depression may have been fading over the
years, but they were not erased. As soon as the ﬁnancial crisis of 2008
broke, all kinds of media were replete with references to the Great
Depression and—more generally—to economic history and the lessons
that might be learned. Clearly, decision makers and the public had an
urgent need to make sense of the highly unexpected and complex situa-
tion that was unfolding. And when the ﬁnancial crisis developed into the
Great Recession, the apparent similarities with the Great Depression
only intensiﬁed as questions and disputes arose about secular stagna-
tion, quantitative easing and tapering, zero-bound interest rates, and
It soon became clear that mainstream economics and modern
ﬁnance were as much part of the problem as the solution, and that
despite—or because of—all the ﬁeld’s advanced econometrics, deductive
reasoning, and assumptions of rationality and Bayesian updating, it was
not particularly well positioned to help us understand what was going on
and what to do about it.
Instead, economic history enjoyed a renewed interest as a depository
where one could search for meaning and explanation. For instance,
Danske Bank, the largest Danish bank, which was hit relatively hard
by the breakdown of the international interbank market following the
failure of Lehman Brothers, published a thirteen-page report in February
2009 with the title “Lessons from the Great Depression.”In December
2011, the Economist published a three-page brieﬁng on the “Lessons of
These examples are only the tip of the iceberg, so Barry Eichen-
green’s most recent book arrives at the right time. Other scholars have
already compared the Great Depression and the Great Recession, of
course, and as early as 2009. For instance, Harold James published
The Creation and Destruction of Value, which focuses on the relation-
ship between globalization and ﬁnancial instability, ending on a some-
what more upbeat note than Eichengreen.
Also, Richard S. Grossman
and Hugh Rockoff recently published an interesting working paper com-
paring responses to ﬁnancial crises in historical perspective. Their basic
point is that economists consistently fought the last war in addressing
See, for instance, Paul Krugman, “How Did Economists Get It So Wrong?”New York
Times Magazine, 2 Sept. 2009.
Allan von Mehren, “Global: Lessons from the Great Depression”(research paper, Danske
Bank, 23 Feb. 2009); “There Could Be Trouble Ahead,”Economist, 10 Dec. 2011.
James, Creation and Destruction of Value. See also Michael Bordo and Harold James,
“The Great Depression Analogy,”Financial History Review 17, no. 2 (2010): 127–40; and
Charles Calomiris, “Banking Crises Yesterday and Today,”Financial History Review 17, no.
1 (2010): 3–12.
Review Essay / 558
crises, a point also made by Anna Schwartz in October 2008.
words, looking back in time for analogies has been widespread since
the ﬁnancial crisis broke out in 2008. Common to most of this research
is a focus on what lessons can be learned for future crises.
While this lessons-of-history approach is also part of Hall of
Mirrors, I found particularly interesting and promising Eichengreen’s
focus on how the actors in the Great Recession used historical analogies,
or “used—and misused—history.”In the introduction, Eichengreen
argues, “insofar as the history of the Great Depression was the frame
through which policymakers viewed events, it caused them to overlook
how profoundly the ﬁnancial system had changed”(p. 5).
Eichengreen’s focus on historical analogy necessarily involves the
concept of narrative, since analogies must come in narrative form. The
quote above illustrates an important point about narratives: they are per-
formative because they make us see the world in a speciﬁc way and legit-
imize certain actions while delegitimizing others. They focus on some
aspects of what they describe and leave others out; they create not
only memory but also forgetting or oblivion. What is not told is not re-
membered, and what is not remembered cannot be taken into account
in decision making.
Such a narrative approach poses a challenge to
the basic assumptions of mainstream economic theory. It thus holds
the promise of improving our understanding of how actors and decision
makers behave under pressure as they deal with an unfolding crisis
under extreme uncertainty.
Such a uses-of-history and narrative approach is a well-established
ﬁeld in the discipline of history.
In economics and economic history,
however, it is—to my knowledge—an extremely rare species.
would seem that Hall of Mirrors is an exciting effort to follow through
on Eichengreen’s important presidential address to the Economic
Richard S. Grossman and Hugh Rockoff, “Fighting the Last War: Economists on the
Lender of Last Resort”(NBER Working Paper No. 20832, National Bureau of Economic Re-
search, Cambridge, Mass., 2015). See also Brian M. Carney, “The Weekend Interview: Anna
Schwartz. Bernanke Is Fighting the Last War,”Wall Street Journal, 18 Oct. 2008.
For this idea of narratives applied to business history, see Per H. Hansen, “Business
History: A Cultural and Narrative Approach,”Business History Review 86, no. 4 (2012):
Among the pioneers in the uses-of-history approach, see Eric Hobsbawm and Terence
Ranger, The Invention of Tradition (Cambridge, U.K., 1983); and Pierre Nora, “General
Introduction: Between Memory and History,”in Realms of Memory: Rethinking the French
Past, ed. Pierre Nora (New York, 1996). For uses of history in business history, see Hansen,
“Business History”; and Per H. Hansen and R. Daniel Wadhwani, “Can Business History
and Anthropology Learn from Each Other?”Journal of Business Anthropology 3, no. 1
One exception that comes to mind is Deirdre McCloskey’s work. See Deirdre
N. McCloskey, The Rhetoric of Economics, 1st ed. (Madison, Wis., 1985); and Deirdre N.
McCloskey, Bourgeois Dignity: Why Economics Can’t Explain the Modern World (Chicago, 2011).
Review Essay / 559
History Association in 2011, which was published in the Journal of Eco-
nomic History in 2012.
In his talk, Eichengreen discussed the widespread invocation of “the
lessons of history”in 2008 and 2009. He focused in particular on how
the historical analogy of the Great Depression was used to make sense
of the ﬁnancial crisis, and why it was this particular analogy that was
used. He drew on cognitive and behavioral disciplines, and on discus-
sions about the use of historical analogies in foreign policy studies, but
not on the narrative and cultural approaches that are gaining ground
in business history, which in my opinion could have been used in a fruit-
I will return to that question later, among others, but ﬁrst a
presentation of the book’s main points.
Main Points of Hall of Mirrors
Hall of Mirrors raises two basic questions or topics. The ﬁrst topic is
a detailed comparison of the causes, development, and consequences of
the two crises. An integral part of Eichengreen’s analysis deals with the
lessons of the Great Depression and how they were or were not
learned and used by decision makers during the Great Recession. The
second topic is the uses-of-history part, which concerns how the
analogy of the Great Depression shaped authorities’response to the ﬁ-
nancial crisis. This discussion includes questions such as how central
bankers and governments used historical narratives—consciously or
not—during the ﬁnancial crisis of 2008–2009 and the Great Recession,
and what the consequences were.
The former topic, it could be argued, is a ﬁrst-order question and,
though it deals with lessons from history, the lessons are mostly
derived by Eichengreen, not by the decision makers. The latter topic,
however, is a second-order question. It focuses not on the true causes
of the Great Recession but on how “the lessons of . . . [the 1930s,] as dis-
tilled by economists and historians, powerfully shaped perceptions and
Barry Eichengreen, “Economic History and Economic Policy,”Journal of Economic
History 72, no. 2 (2012): 289–307.
See, for instance, Hansen, “Business History”; Per H. Hansen, “From Finance Capitalism
to Financialization: A Cultural and Narrative Perspective on 150 Years of Financial History,”
Enterprise & Society 15, no. 4 (2014): 605–42; and Per H. Hansen, “Making Sense of Financial
Crisis and Scandal: A Danish Bank Failure in the Era of Finance Capitalism,”Enterprise &
Society 13, no. 3 (2012): 672–706. See also Mads Mordhorst, “Arla and Danish National Iden-
tity: Business History as Cultural History,”Business History 56, no. 1 (2014): 116–33; and
Mads Mordhorst, “From Counterfactual History to Counter-Narrative History,”Management
& Organizational History 3, no. 1 (2008): 5–26.
Review Essay / 560
The book is organized in four chronological sections. Part 1, “The
Best of Times,”compares the bubbles or eras of unsustainable optimism
that preceded the ﬁnancial breakdowns in the 1920s and the 2000s, re-
spectively. Part 2, “The Worst of Times,”proceeds to tell the stories of the
two crises, while part 3, “Toward Better Times,”discusses the recovery
efforts in detail. Finally, part 4, “Avoiding the Next Time,”argues that
there will be a next time.
The book is well written, with numerous precise portraits of some of
the main actors and a generous dose of understated humor and sarcasm,
by now a hallmark of Eichengreen’s writing style. The author shifts ef-
fortlessly between the micro and the macro levels, and while the argu-
ment is complex, there are only a few technical sections that might
deter the average business historian such as myself. It is hard to
imagine any scholar besides Eichengreen who could have compared
the two crises with such command of empirical detail, general develop-
ment, and theoretical issues.
The main point in Hall of Mirrors is that decision makers had
learned (some of) the lessons from the 1930s and therefore managed to
avoid “the worst,”that is, a total breakdown of the ﬁnancial system and
the economy. As is well known, some of the important decision makers
and advisers were scholars with extensive knowledge of the Great Depres-
sion. The chair of the Federal Reserve Board, Ben Bernanke, was one,and
Christina Romer, the chair of President Barack Obama’s Council of Eco-
nomic Advisors, another. More surprisingly, perhaps, British Prime Min-
ister Gordon Brown is praised for being one of the actors who best
understood what was at stake during the crisis. The reason for this assess-
ment of Brown is at least partly that as a former history student he had
studied the 1933 World Economic Conference in London.
For a moment it seems that Eichengreen comes close to arguing that
people with historical knowledge are better decision makers than people
without such knowledge. However, in the introduction he admits that
economic historians did not fare better than economists when it came
to foreseeing the crisis. Moreover, Bernanke is hardly one of the
heroes of the story. He is criticized for, among other things, not recogniz-
ing the housing bubble, letting Lehman Brothers fail, and believing that
the Great Moderation was not only real but also Fed-made. Indeed, in
line with Irving Fisher, Hyman Minsky, and Charles Kindleberger,
Eichengreen points to the importance of narratives for inﬂating the
bubble in both the 1920s (New Era) and the 1990s (the New Economy)
and 2000s (the Great Moderation).
He argues that the similarities
See Charles P. Kindleberger and Robert Z. Aliber, Manias, Panics, and Crashes: A
History of Financial Crises, 6th ed. (New York, 2011); Hyman Minsky, “A Theory of Systemic
Review Essay / 561
between the 1920s and the 2000s were a warning sign, which Bernanke
of all people should have noticed.
Among the many narratives carrying “lessons”from the Great
Depression, Milton Friedman and Anna Schwartz’sA Monetary
History of the United States (1963) is perhaps the best known. Essen-
tially, Friedman and Schwartz blamed the Depression in the United
States on the Federal Reserve’s failure to act as a lender of last resort
and to provide liquidity to ﬁnancial markets during the banking crises
of the early 1930s.
While Hall of Mirrors has numerous references to
the “lessons of the 1930s,”the “lessons of the Great Depression,”and
more generally “lessons of history,”this case is the only explicit
example where Eichengreen substantiates empirically how decision
makers understood the crisis through the lens or frame of the 1930s.
The empirical substantiation, of course, is the well-known speech
given by Bernanke in honor of Friedman’s ninetieth birthday, in 2002,
where Bernanke acknowledged the Federal Reserve’s responsibility for
the Great Depression and continued, “We’re very sorry. But thanks to
you, we won’t do it again”(p. 170).
Despite the promise, they almost did it again by allowing Lehman
Brothers to fail, an event that Eichengreen characterizes as the “single
most important policy failure of 2008”(p. 199). That failure led to a
run on the shadow banking system, which had not been foreseen
because the analogy of the 1930s focused on the commercial—not the
shadow—banks. Friedman and Schwartz’s narrative framed the way de-
cision makers perceived the world and where they, in turn, looked for
signs of risk. Decision makers focused on the lesson from the 1930s con-
cerning the risk of a run on the commercial banking system. The
immense risks built up in the investment banks and other parts of the
shadow banking system were blind spots and therefore neglected.
Lehman’s failure on September 15, 2008, had dramatic conse-
quences both in the United States and in Europe. Governments and
central banks mobilized all available resources in order to halt the
crisis from developing into a breakdown as in the 1930s. Friedman
and Schwartz’s lesson had been learned after all, and the worst was
avoided in 2008 and 2009. Liquidity, currency swaps, ﬁscal stimulation,
and international cooperation inspired by the lessons of the 1930s all
contributed to this result.
Fragility,”in Financial Crises: Institutions and Markets in a Fragile Environment, ed.
Edward I. Altman and Arnold W. Sametz (New York, 1977); and Irving Fisher, “The Debt-
Deﬂation Theory of Great Depressions,”Econometrica no. 1 (1933): 337–57. See also
Hansen, “Making Sense”and “From Finance Capitalism to Financialization.”
See Milton Friedman and Anna J. Schwartz, “The Great Contraction, 1929–1933,”part 7
in A Monetary History of the United States, 1867–1960 (Princeton, 1963).
Review Essay / 562
Shift to a New Analogy
Having saved the world from another Great Depression, however,
things took a turn for the worse. According to Eichengreen, another his-
torical analogy with quite different lessons now came to dominate deci-
sion makers’worldview: the narrative of German hyperinﬂation and fear
of a repetition of 1970s inﬂation. Historically based fears of inﬂation
became the new dominant frame in 2010, when decision makers in
both Europe and the United States prematurely shifted their focus to
state budgets and therefore austerity, which soon caused economies to
contract and unemployment to rise. This result is the ironic twist in
Hall of Mirrors. Precisely because governments and central bankers
avoided “the worst”by applying the lessons of the 1930s, they reefed
the sails too early and caused a double-dip recession, also known as
the Great Recession.
In other words, the Great Recession—like the Great Depression—
was self-made. As Eichengreen has shown in his book Golden Fetters,
the failure to leave gold and to devalue currencies in the 1930s forced
countries to deﬂate their economies. This was what made the Great
Eighty years later it was as if Andrew Mellon’s liqui-
dationism had returned, and this time around, to make matters worse,
Europe had the modern equivalent of the gold standard, the euro—
another political failure, in Eichengreen’s view.
The result was that
“Europe was doing even worse than in the Great Depression”(p. 353).
So much for the lessons of history.
Even in countries with ﬂoating exchange rates, austerity became the
order of the day. In the United States the rise of the Tea Party and the
sequester took care of that, while in Great Britain, Prime Minister
David Cameron made it clear that budget cuts had come to stay. Eichen-
green is not a big fan of the idea of expansionary ﬁscal consolidation,
where budget costs are supposed to instill conﬁdence and create
growth. He suggests that liquidationism and austerity may be “universal
human instincts . . . not easily suppressed”(p. 384).
Austerity may be human instinct, or nature, but is it not as likely that
“liquidationism”is a narrative deeply embedded in Western culture and
related to private interests and power? As a matter of fact, Eichengreen’s
analysis mostly leaves out the question of whose interests were served by
the policies pursued before, during, and after the crises. Questions of
Barry Eichengreen, Golden Fetters: The Gold Standard and the Great Depression, 1919–
1939 (Oxford, 1992).
See also Barry Eichengreen and Peter Temin, “Fetters of Gold and Paper,”Oxford
Review of Economic Policy 26, no. 3 (2010): 370–84.
Review Essay / 563
power also do not ﬁgure prominently in the analysis, which in my
opinion is problematic.
In any case, Eichengreen’s sympathies lie squarely with Keynesian
theory. He approvingly quotes Franklin D. Roosevelt: “We accepted
the ﬁnal responsibility of Government, after all else had failed, to
spend money when no one else had money left to spend”(p. 327). At
the same time, he argues that FDR was a ﬁscal conservative who believed
in balanced budgets. Eichengreen rejects the argument that the New
Deal was a Keynesian exercise in ﬁscal stimulation. Only Japan conduct-
ed a truly Keynesian policy, while FDR’s most important contributions to
dragging the United States out of the Depression were leaving gold, de-
valuing the dollar, and easing monetary policy.
Eichengreen returns several times to the obligation “to spend money
when no one else had money left to spend,”but the authorities in Europe
and the United States had not learned the Keynesian lesson. Instead,
they only avoided “the worst”in 2008–2009 before the role of the
state came under pressure more generally. Fiscal deﬁcits exploded
because nations felt compelled to bail out their banking systems, and
the European debt crisis began.
With the arrival of the debt crisis,
focus moved from the ﬁnancial sector to the states as the villains. This
shift had consequences for the European debt crisis. With states and gov-
ernments as the new scapegoats of the story, and with the dominant nar-
rative of the euro crisis, “which set abstemious Germans against
proﬂigate Greeks and, more generally, thrifty Northern Europeans
against spendthrift Southerners,”any agreement was (and still is) hard
to reach (p. 373).
But the ironic tale of avoiding “the worst”continued, according to
Eichengreen. Not only are the people of the United States and Europe
paying a high price because of the ill-timed turn to austerity, but avoiding
“the worst”also gave the ﬁnancial sector time to regroup and lobby gov-
ernments to ease or avoid new regulation. In combination with the size
and complexity of the ﬁnancial system, the result was that, unlike in the
1930s, postcrisis ﬁnancial regulation did not amount to much. The
Dodd-Frank Act sought to “strengthen the system rather than overturn
it,”as the Glass-Steagall Act had done (p. 320).
Hall of Mirrors ends on a somber note. Based on his in-depth com-
parison of the Great Depression and the Great Recession, Eichengreen
concludes that “radical reform is possible only in the wake of an excep-
tional crisis,”and he stresses that precisely because “the worst”was
avoided, “success became the mother of failure”(pp. 324, 11). The
result is that we are likely to see another serious crisis again.
See also Mark Blyth, Austerity: The History of a Dangerous Idea (New York, 2013).
Review Essay / 564
Eichengreen’s history of the Great Depression and the Great Reces-
sion is a successful example of diachronic comparative history. More-
over, the ambition of addressing how policymakers used history and
viewed the unfolding crisis through the frame of the Great Depression
is highly laudable. However, this part of the book does not fully deliver
on its promise, in my opinion. In this section I will discuss a few of the
issues where I think Eichengreen could have gone further and identify
areas where more work is needed in order to better understand how his-
torical narratives or analogies of earlier ﬁnancial crises are used to make
sense of unfolding emergencies and how they constrain the choice set of
In Fortune Tellers, Walter Friedman brieﬂy recounts how “the
1920–21 crisis served as a baseline of sorts”to forecasters who used
that analogy to make sense of the Great Depression.
analogies are explicitly referred to or just implicitly evoked in the
shape of experience, they are consistently used to understand the
present. Because such analogies guide our decisions and actions, they
also shape the future. As Eichengreen argues in his presidential
address, the Great Depression “legitimated certain responses to the col-
lapse of economic and ﬁnancial activity while delegitimizing others.”
However, as I have indicated above, the lessons Eichengreen derives
from the Great Depression are mostly his own, not those of the actual de-
cision makers. Most of the time Eichengreen sticks to the ﬁrst-order per-
spective, while the second-order perspective would have focused on how
the actors explicitly or implicitly used historical analogies as a guide for
making sense of the Great Recession. This is not a subtle difference but,
on the contrary, an important distinction with signiﬁcant implications
for our understanding of the actions of policymakers. Rather than
judging decisions and actions, we might be better able to understand
why central bankers and others acted as they did if we knew how they
made sense of what was going on.
When the next ﬁnancial crash arrives, we are likely to once again see
decision makers stumble along trying to make sense of scarce informa-
tion, the meaning of which is rarely clear and unambiguous, especially
during a crisis. Eichengreen recognizes this and argues that we can
now better “appreciate how policy makers in the 1920s and 1930s were
forced to take decisions on the basis of partial information”(p. 380).
But the point goes further than that, I would argue. If narratives shape
Walter A. Friedman, Fortune Tellers: The Story of America’s First Economic
Forecasters (Princeton, 2014), 200.
Eichengreen, “Economic History,”290.
Review Essay / 565
perception, decision making is not just a matter of incomplete and scarce
information. The available information also needs to be assigned
meaning, before it can be used as a blueprint for decisions and action.
This sense-making process is carried out through narratives. It is difﬁcult
to make decisions and to act before a reasonably consistent narrative ex-
plaining what is going on has been created.
That is what decision
makers did during the 1931 and 2008 ﬁnancial crises, and for better or
worse they used the historical analogies available to them at the time.
If we want to understand these methods better, we need to focus on
sense-making processes as decision makers go forward. In addition to
narrative analysis, we might use the German historian Reinhart Kosel-
leck’s set of conceptual tools to make such an analysis. Koselleck’s
point that actors are situated in the present between a “space of experi-
ence”and a “horizon of expectation”enables us to think more systemati-
cally about the role of historical analogies in decision making.
Mirrors is already contributing to such a line of thinking in economic
history, but I would argue that we need a more focused second-order
analysis of how policymakers perceived the crisis within the constraints
of the historical analogy of the Great Depression.
This scrutiny is even more necessary because, as Eichengreen also
reminds us, “there does not exist a single historical narrative, but
several. History is contested”(p. 382). In his presidential address,
Eichengreen further argues that we will, therefore, “see more explicit at-
tention to the question of how such narratives are formed.”
exactly why there aren’t any clear, undisputed lessons from history, as
the debate about the causes of the 2008 ﬁnancial crisis has made quite
It is hard to blame decision makers for not unambiguously under-
standing the lessons of history if history is contested and there is no
single universally accepted historical narrative—no true lessons. There
will always be an ongoing struggle over what an event means; that is
why history is contested in the ﬁrst place—it’s about interests and
See Mitchel Y. Abolaﬁa, “Making Sense of Recession: Toward an Interpretive Theory of
Economic Action,”in The Economic Sociology of Capitalism, ed. Victor Nee and Richard
Swedberg (Princeton, 2005); Mitchel Y. Abolaﬁa, “Narrative Construction as Sensemaking:
How a Central Bank Thinks,”Organization Studies 31, no. 3 (2010): 349–67; and Hansen,
Reinhart Koselleck, Futures Past: On the Semantics of Historical Time (New York,
Eichengreen, “Economic History,”304. See also Hall of Mirrors, 382.
To see that there are widely different perceptions of what caused the ﬁnancial crisis, one
need only contrast Eichengreen’s account with, say, Lawrence White’s“How Did We Get into
This Financial Mess?”(Brieﬁng Paper No. 110, Cato Institute, Washington, D.C., 2008) or
Peter J. Wallison’s“Three Narratives about the Financial Crisis,”Cato Journal 31, no. 3
Review Essay / 566
power. In addition, as I read it, Hall of Mirrors is more a comparison of
the two crises and how central bankers and governments responded to
them than it is an analysis of how central bankers and governments
used historical analogies and narratives (the lessons of history) to
make sense of and halt the worst ﬁnancial crises ever.
While I agree with most of Eichengreen’s lessons, had he tried to
trace how decision makers actually used historical analogies to make
sense of the crisis, the result would have been more in line with the
book’s subtitle. Such an inquiry would have required more focus on
the reasoning and explanations put forward by central bankers and
other decision makers. Perhaps I am being the typical annoying reviewer
and asking for a different book, but if so it is only because I agree with
Eichengreen that decision makers, consciously or not, used analogies
in their attempts to make sense of crises.
I suppose my concern is that the narrative/analogy framework so
well discussed in Eichengreen’s presidential address and in the book’s
conclusion is not consistently applied in the body of the book. Here, I
believe, Eichengreen could have beneﬁted from some of the recent re-
search in business history and organization studies on narratives.
For instance, Eichengreen’s focus on the “dominant narrative”in the
euro crisis points toward accepting the inﬂuence of narratives on be-
havior. Twenty years ago Eichengreen explained the lack of cooperation
during the Great Depression with reference to the “incompatible concep-
tual frameworks”of the actors.
The shift from “incompatible con-
ceptual frameworks”to “dominant narratives”is important because it
recognizes the role of narratives in shaping our perceptions and
actions. Economic history has added a powerful analytical approach to
its toolbox that now needs to be applied with a vengeance.
What might such a second-order narrative analysis look like? When
Eichengreen blames decision makers for neither understanding nor
For general approaches in organizational history, see Marcelo Bucheli and R. Daniel
Wadhwani, eds., Organizations in Time: History, Theory, Methods (New York, 2014); and
Stephanie Decker, Matthias Kipping, and R. Daniel Wadhwani, “New Business Histories! Plu-
rality in Business History Research Methods,”Business History 57, no. 1 (2015): 30–40. Olof
Brunninge, “Using History in Organizations: How Managers Make Purposeful Reference to
History in Strategy Processes,”Journal of Organizational Change Management 22, no. 1
(2009): 8–26; Hansen, “Business History”; Hansen, “From Finance Capitalism to Financiali-
zation”; Hansen and Wadhwani, “Business History and Anthropology”; Mordhorst, “Arla and
Danish National Identity.”Roy Suddaby, William M. Foster, and Chris Quinn Trank, “Rhetor-
ical History as a Source of Competitive Advantage,”in The Globalization of Strategy Research,
ed. Joel A. C. Baum and Joseph Lampel (Bingley, U.K., 2010), 147–73.
Barry Eichengreen, “Central Bank Co-operation and Exchange Rate Commitments: The
Classical and Interwar Gold Standards Compared,”Financial History Review 2, no. 2 (1995):
See also George Akerlof and Robert J. Shiller, Animal Spirits: How Human Psychology
Drives the Economy, and Why It Matters for Global Capitalism (Princeton, 2009).
Review Essay / 567
applying the lessons of the Great Depression to the Great Recession, I
would argue that this failure might be understood in the context of the
New Era and Great Moderation narratives that Eichengreen refers to
in Hall of Mirrors. Is it not possible, even likely, that such narratives
are important drivers of bubbles? And how can we expect decision
makers to be able to see beyond these narratives when they see the
world through them?
My point is that rationality is embedded within the dominant narra-
tive, such as the so-called Great Moderation, which shapes people’s per-
ception and worldview and, therefore, their actions or lack of action.
Narratives create groupthink, what Robert Shiller has called a “social ep-
And narratives also work in smaller groups and in speciﬁc ep-
istemic communities, such as the central bank community.
So narratives, I would argue, are cultural and social phenomena with
economic consequences. Only very few economists (and historians, for
that matter) cried ﬁnancial bubble when stock markets and housing
markets inﬂated during the 2000s. We, too, were under the inﬂuence
of the narrative. A case in point is the ofﬁcial report on the Danish ﬁnan-
cial crisis of 2008–2009. The report refers several times to the “opti-
mism”behind the bubble, but nowhere does it explore where this
excessive optimism came from.
That optimism was likely driven by
narratives that inﬂated the bubble, while investors and regulators alike
failed to see through the social or cultural epidemic created by this think-
ing. Perhaps the best indicator of upcoming troubles in ﬁnancial markets
might come from tracking the narratives that drive the optimism needed
for inﬂating a bubble. Financial institutions have already realized that
language is an important variable when trying to make sense of ﬁnancial
As Eichengreen says, historical narratives powerfully shape percep-
tions and reactions. But they do more than that. They not only create
memory but also oblivion or blind spots by focusing on some things
while leaving other things out.
This selective focus raises interesting
See, for instance, Ben S. Bernanke, “The Great Moderation”(remarks at the meetings of
the Eastern Economic Association, Washington, D.C., 20 Feb. 2004), available at http://www.
Robert J. Shiller, “The Sickness beneath the Slump,”New York Times, 11 June 2011. See
also Akerlof and Shiller, Animal Spirits.
Jesper Rangvid, “The Financial Crisis in Denmark: Causes, Consequences and Lessons,”
Ministry of Business and Growth, Denmark, last modiﬁed 18 Sept. 2013, accessed 25 Apr. 2015,
See, for instance, “Dow Jones Introduces News Analytics to Institutional Trading Com-
munity,”Dow Jones press release, 14 Feb. 2012, http://www.dowjones.com/pressroom/
Daniel Geiger and Elena Antonacopoulou, “Narratives and Organizational Dynamics:
Exploring Blind Spots and Organizational Inertia,”Journal of Applied Behavioral Science
Review Essay / 568
questions: Exactly what memories or analogies are remembered and
which are forgotten, and why? Why, when, and how did memories of
the Great Depression fade, only to be reactivated in the 2008 ﬁnancial
crisis? And why did the Great Depression analogy shift to the fear of in-
ﬂation story in 2010?
It was most likely the eruption of the euro crisis that drove the shift
from using the lessons of the Great Depression to using those of 1920s
hyperinﬂation and 1970s inﬂation. This shift in historical narrative or
analogy in turn made thorough ﬁnancial and social reform impossible.
The weakening of the state, and the Keynesian narrative more generally,
also contributed strongly to the lack of ﬁnancial reform, as did cultural
capture, or groupthink, where ofﬁcials and the public in general came
to accept the narrative of ﬁnance as the wheels that drove the economy.
Eichengreen argues that only if the Great Recession had been
worse—an exceptional crisis—would groundbreaking reform have been
possible; a narrative perspective offers an alternative interpretation.
The Great Recession was and is serious enough to warrant deep
reform. Why this has not happened and does not seem likely is because
no consistent and coherent narrative has been put forward that can
explain what happened and point us in a new direction. For a while in
2009 such an alternative narrative based on a Keynesian framework
seemed to be under construction. However, as already mentioned, the
European debt crisis effectively killed that alternative narrative and
shifted the power balance once again. As a result the status quo prevailed.
In conclusion, Hall of Mirrors is not really a study of the uses and
misuses of history by the actors and how history shaped their percep-
tions and decisions in the Great Recession. Together with Eichengreen’s
2012 presidential address, however, Hall of Mirrors provides a convinc-
ing framework for economists and economic historians to build on.
While we are waiting for that to happen, Hall of Mirrors is a must-
read on its own terms: an outstanding analysis of the similarities and dif-
ferences between the two great crises of the twentieth and twenty-ﬁrst
Per H. Hansen is professor of business history at Copenhagen Business
School. His most recent publication is Finn Juhl and His House (Ostﬁldern,
2014). Some of his current research is on central bankers and sense making
in the 1931 ﬁnancial crisis.
45, no. 3 (2009): 411–36; Brunninge, “Using History in Organizations”; Hansen, “Business
See Hansen, “Finance Capitalism to Financialization.”On cultural capture, see James
Kwak, “Cultural Capture and the Financial Crisis,”in Preventing Regulatory Capture:
Special Interest Inﬂuence and How to Limit It, ed. Daniel Carpenter and David A. Moss (Cam-
bridge, Mass., 2013).
Review Essay / 569