LOTS of people are currently trying very hard to figure out what's going to happen within the global economy over the next 1, 2, 5, and 10 years. It seems like the sort of thing one ought to be able to manage if one tries hard enough. It is, however, an impossible task (though some folks do have a talent for sketching out broad trends). I've been reminded of the futility of prognostication in doing a bit of research for a piece that will appear in the next print edition of The Economist. That research has taken me into our archives, to see what we were writing in 1931. It's a look back that has proven to be something of a revelation for me. I'll quote a few examples of what I found.

Our opening editorial in the first edition of 1931 was a rumination on the trials of the 1920s, in which we wish our readers a "Happy New Decade":

We do not despair. We believe the world to be saner, both politically and economically, than ten years ago...The tasks before us are as formidable as at any time in our history. But our capacity to perform them is undiminished, if we will only use it. Our national advantages remain; the character of our people has not changed; the march of science is playing into our hands...Believing this, it is with good heart and confidence that we wish our readers a "happy new decade."

It is quite depressing to read assessments of the world economy, and the German economy especially, from the early months of 1931. Germany fell into recession a bit earlier than the rest of the Atlantic economies, as inward capital flows reversed, mostly due to investors sending money to America to bet on soaring stocks. By 1931, however, there were some signs of a levelling off of the economy's decline, and we noted in the issue of January 10th that, "It is not apparent yet whether the lowest point has already been reached, but it seems more likely that the decline will come to an end during 1931 at the latest."

At the time, it seemed quite possible, perhaps even likely, that the Nazis had reached the apex of their power. In a note in the issue of February 21, The Economist comments on the failure of a coalition of radical parties to take control of the Reichstag through parliamentary procedure:

The withdrawal of the National Socialists from the Reichstag is patently a sign of weakness...The gesture of withdrawal would only have had point if it could have been followed up by direct revolutionary action, but there is not the remotest question of that. What Herr Hitler failed to do in 1923 cannot even be attempted now. Even apart from the fact that the severest trade depression is less productive of a revolutionary spirit than such catastrophic inflation as Germany experienced in 1923...the strongest protection of the State is the unity which exists among its highest executive organs... All this does not mean that the tide of National Socialism has subsided...Everything, of course, will depend upon the course of business, which seems recently to have shown some signs of improvement.

A note from March 7th read:

Measured in terms of sheer pessimism, December, 1930, was probably the blackest month in German history since 1923. Some time in January, however, a change occurred, and, during the last month or so, it has been possible to observe a growing feeling that the worst is over—at least for the time being. It is yet impossible to speak of a revival of optimisim, although a marked rise on the Stock Exchange from the lowest levels has taken place...

The same issue carries an advertisement for "J.M. Keynes' New Book...A Treatise on Money".

There are fascinating glimpses of the ongoing debate over the nature of the Depression. A note titled, "Mr Keynes and Spending" reads:

While Christmas shopping was at its height we deprecated the idea that deliberate retrenchment of personal expensiture, not dictated by narrowing of the means of the individual, was socially desirable in present economic conditions. Mr Keynes, in a recent broadcast address, has gone further, and has advocated a course which, in our view, might prove the worse of two evils. Every pound saved, according to Mr Keynes, is so much added to the burden of unemployment, and now is the time for everybody, and especially for public authorities, to "spend magnificently." In so far as trade depression is psychological, this might be sound advice if enthusiastic spending in Great Britain were sufficient to revive industrial confidence throughout the world. If it were not, the consequences...would be a brief and glorious boom for the sheltered industries and a rise in the domestic price level which, through its effect on costs, would give their quietus to the export trades... [W]e adhere to our conviction that salvation lies for this country not in visions of "managed insulation" but in the reduction of costs; that retrenchment in many sections of wages and, furthermore, in unproductive State expenditure is essential if this desideratum is to be realised...

On January 24th, we discuss the debate over the importance of monetary policy:

When due weight is given to all the foregoing factors, we agree with Mr Goodenough that there is a danger lest the responsibility of central banks' monetary policy for the present depression be exaggerated. At the same time, reviewing the range and extent of the price decline since 1924, we find it difficult not to detect in the monetary policy of the leading countries a main cause of the downward drift. How much can be done in present circumstances by central banks to put matters right is another matter...

What's needed, we agree is a "steady general level of commodity prices", but the problem, we suggest, is in knowing just what that level ought to be, a remarkable concern given the extent of deflation in the depression.

Moving forward, the paper noted disturbances within the ranks of the Nazi party and commented, "These are, of course, all signs of disintegration in the ranks of the National Socialists. Herr Hitler is no longer master of the extremist sentiments which he himself has bred..."

It is often impossible to recognise the moments on which history hinges when they arrive. Tucked inside the issue of May 16th, in a note titled simply, "The Credit-Anstalt", The Economist writes:

Fortunately, it is already clear that the difficulties of the Credit-Anstalt are already being taken successfully in hand, and the very frank and reassuring statement issued this week should go a long way to dispel doubts... These events inevitably constituted a serious menace to the economic situation in Austria, and all concerned are to be congratulated upon the frank, prompt and energetic manner in which the episode has been dealt with.

Looking through the data included in each issue, one notes a steady decline in the foreign exchange reserves of the German Reichsbank and the Austrian National Bank across 1931. Around this point, the drop in Austrian reserves accelerates. Credit-Anstalt doesn't merit a mention in the issue of May 23rd. By May 30th, we're writing of the bank, "Recent developments unfortunately suggest that the task of overcoming the difficulties under which this institution are labouring are proving more formidable than at one time seemed likely."

That same issue, by the way, includes a note covering a remarkable lecture by economist Gustav Cassel, who is quoted as saying that the world's central banks should "come together and make an end of the depression simply by declaring that they intend, from this moment on, to supply the world so abundantly with means of payment that no further fall in prices will be possible." Our comment is that, "it is no use pouring oil copiously upon the bearings when once they have seized up, and this is one reason why trade fails to revive, even though there is already to-day a superabundance of money and credit."

Events move quite quickly through the summer. As of June 6th, we are still writing of the Credit-Anstalt that "there is good ground for hoping that the corner has been turned". By June 20th, however, the lead editorial is titled, "In The Thick Of The Storm". It discusses the turmoil in financial markets and the clear spread of panic to Germany where, in an effort to fight off gold outflows, the Reichsbank increased its benchmark interest rate from 5% to 7%. The next week, coverage is hopeful despite continued deterioration of the situation in Germany, thanks to President Hoover's proposal for a one-year moratorium on all international debt payments. The news is cheered, though it is immediately noted that the French are not happy with the plan. By July 4th it is back to gloom, as it becomes clear that the French are unlikely to sign on to the plan. And on July 18th, it is reported that Germany has reached the end of its rope. A large bank—the Danatbank—is forced to suspend payments, and a general moratorium on payments across the banking system is imposed. This is the point at which Germany, more or less, leaves the international financial system.

Almost immediately, the run jumps to Britain, and by July 25th, we're discussing the Bank of England's decision to raise interest rates to fend off the crisis. By August 1st, the Bank's rate has gone up another full percentage point. Germany has attempted to reopen its banking system, as a part of which process it raised its benchmark interest rate from 10% to 15%, a development on which the paper comments, "It is beyond any doubt that a discount rate of such abnormal height cannot be long borne without bringing about an economic shrinkage of important extent."

The pressure on Britain continued to develop. On September 19th we report on the emergency austerity budget pushed by Chancellor Philip Snowden in an effort to restore confidence, but in the next issue we cover the suspension of gold payments in Britain. It would later become clear that departure from gold was perhaps the critical milestone in moving from contraction to expansion. America's recovery would begin in earnest in 1933 when it left gold. France's would have to wait until it abandoned gold in 1936. Though economists were feeling their way toward an understanding of these dynamics at the time, however, it would be decades before the full nature of the crisis and its resolution became clear.

This isn't meant as a broader comment on current events, except as to point out that in the thick of a crisis one will struggle to see the full dimensions of the situation.