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Historian: we are heading for a 1914-style collapse

Niall Ferguson, professor of history at Harvard University, thinks that today’s investors have a great deal to learn from the events that led up to the first world war — and his ideas are gaining followers in the London. Ferguson’s argument is that while analysts usually look to the Great Depression of the 1930s or the oil shock of the 1970s to understand impending crises, they should in fact be looking back almost 100 years.


While he does not suggest we are heading for another world war, he sees remarkable political and financial parallels between today and the period before the outbreak of hostilities in 1914. Then, as now, geopolitical risks were mounting against a benign economic backdrop of low and stable inflation.

The risks sound familiar: an overstretched empire; rivalry between two great powers, manifested in simmering tensions over trade; a rogue regime sponsoring terrorism. “The risks back then were like the risks today,” said Ferguson.

However, investors in 1914 largely ignored the rising political risks, and stock-market volatility remained low — as it is today. In fact, the financial press of the time did not even entertain the possibility of war until July 22, 1914, three weeks after the assassination of Archduke Franz Ferdinand and just days before war was declared.

When, in early August, investors finally appreciated the risks, the stampede for the exit was so great stock markets round the world were forced to close. The London market did not open again until the end of the year.

Ferguson believes that if the markets had remained open, the collapse would have been more serious than the Wall Street crash of 1929. He said: “That is one of the most important, but least understood, facts of financial history. Everybody assumes that 1929 was the big one, but 1914 was far, far worse.”

Although he does not suggest we are heading for another crash of that magnitude, he believes investors today are as complacent as their great-grandfathers.