If there is any political division that truly transcends international boundaries, it is surely people’s views about globalization. Since the 2008 Financial Crisis, longstanding divisions between left and right throughout the world have been upturned as politicians and movements reassess their opinions of the integration of markets across the globe.

Most academic research on this topic has focused on the rise of anti-globalization sentiment over the past ten years. Few have taken the more complicated but informative route of reflecting on the long-term ebbs and flows of globalizing tendencies. This perspective is one of the many strengths of the Princeton economic historian Harold James’s new book Seven Crashes: The Economic Crises That Shaped Globalization.

James illustrates the extent to which the world’s economic and political interconnectedness over the past two hundred years has been shaped by reactions to crises triggered by supply-side and demand-side shocks. In the seven shocks covered in this book—the Great Famine of the 1840s, the 1873 financial crisis, the First World War and the Great Inflation, the Great Depression, the Great Inflation of the 1970s, the 2008 Great Recession, and the “Great Lockdown” of 2020–2022—James depicts policymakers as often taking a backseat to things like price movements in his analysis of how and why economies globalize—or don’t, as the case may be.

Not Every Crisis Means de-Globalization

A lasting legacy of cataclysmic events like the 2008 Financial Crisis and the Great Depression is that they have accustomed us to think of severe economic downturns and international crises like war and pandemics as invariably causing nations to turn inwards. In such circumstances, the story goes, governments naturally seek to reduce national economies’ exposure to transnational movements of capital, people, and goods. That, we are told, is how they believe stability and security can be re-established.

One of the most important insights of James’s book is that severe political and economic upheavals have in many cases accelerated globalization. The second half of the nineteenth century is often seen as a type of golden age for the global integration of the world’s economies. James demonstrates, however, that the roots of this globalization are to be found in crises.

“The surge of interconnectedness in the nineteenth century,” James states, “started as a response to a shock: the harvest failures, famines, and then financial and business collapse of the mid-1840s.” These events were accompanied by the liberal-nationalist revolutions that swept Europe in 1848.

The sheer scale of these upheavals should, one might assume, have undermined the growing degree of cross-border economic integration that Karl Marx had noticed and which, he believed, enhanced society’s vulnerability during crises. The contrary, however, occurred. The experience of economic misery caused people and many governments to look not inwards but outwards.

In the face of food shortages, for example, countries sought to obtain supplies from other nations. It made little sense for buyers or sellers to be protectionists in such conditions. Likewise, many people reacted to economic hardship and political chaos by moving to the Americas and far-flung British colonies in the Southern Hemisphere. Cross-border monetary integration eventually followed as the foundations of the international gold standard were laid to re-establish monetary stability. Similarly, capital became more mobile as bankers engaged in financial innovations that helped them overcome widespread banking failures.

A parallel story may be told of the economic integration that started accelerating in the 1970s. The oil shock, inflationary wage-price spirals, and worries about scarcity initially produced a drift towards protectionist policies, with the sheer urgency of supply problems being met by attempts to make production more autarkic. But efforts at using government controls to manage scarcity and reduce inflation conspicuously failed, most notably in the cases of the Nixon and Carter administrations in America and the Heath and Callaghan governments in Britain.

The effect was to discredit not only interventionist governments but also interventionism as a policy solution to economic problems. Businesses and political leaders consequently sought to address stagnation by means such as enhancing innovation and improving competitiveness. That implied market openness and liberalization, thereby creating a new impetus towards transnational economic integration.

Though we usually associate these changes with center-right governments like the Reagan and Thatcher administrations, James notes that center-left governments were the first to start following a deregulatory agenda in the 1970s. Moreover, some of the most far-reaching liberalizations in the 1980s were undertaken by center-left governments in Australia and New Zealand. In the face of necessity, longstanding ideological commitments to social democratic norms, managed economies, and protectionism quickly gave way.

Prices, Prices, Prices

Liberalization was not, however, the predominate reaction to four of the seven crises studied by James. Instead, economic de-integration followed, sometimes severely so in the case of the Great War and the Great Depression.

In these instances, geopolitics plays a significant role in James’s account. Even before World War I, government and military leaders understood that victory in any continental-wide war would depend on their ability to cut their opponents off from global markets. Hence, when war came in 1914, Germany and Austria-Hungary quickly found themselves blockaded by sea and land by the Allied powers. Likewise, the economic nationalism and beggar-thy-neighbor policies pursued by many interwar governments made the inward turn sparked by the banking meltdown of the late-1920s in America and Europe far more dramatic and lasting in depth and breadth.

At the core of James’s explanation for globalization and de-globalization, however, is the role played by the signaling function of prices during crises, and how governments, businesses, and individuals respond to these changes. Dramatic price movements, especially in essential goods like food or energy, don’t allow governments to avoid making basic decisions about what to do.

The most fundamental of such choices might be summarized in the following way. Do governments seek to alter price signals through wage freezes, price controls, tariffs, etc., in an effort to manage the crisis, knowing that this will distort the information conveyed by free prices concerning the true status of supply and demand for goods and services, thereby storing up major problems for the future? Or do they let individuals and businesses react as they see fit, knowing that, at least in the short term, the appearance of a non-response by government may ferment internal unrest and a turn to populists peddling simplistic solutions?

Complicating matters is the sheer speed at which price signals can unpredictably change during crises, and the slowness of governments to respond. Under such pressures, not all governments make correct and timely decisions. The fact that they often operate within a policy framework designed with the last economic crisis in mind does not help.

If history is indeed the great magister, we can have some confidence that there are things to learn from comprehensive studies of previous crises associated with globalization. It is to Harold James’s credit that he has indeed provided us with such knowledge.

There is, however, another dimension to dramatic price signals that, James points out, can propel globalization forward. Price signals can alert people to the prospect of astonishing profit if they are prepared to think in new ways, innovate, and use existing technology to do so. Rising prices in the 1840s and 1970s caused many to consider how the railroad and the container ship respectively might be used to transport goods far more efficiently and at lower cost across huge distances. The unintended side-effect was a greater integration of economies that quickened as political barriers to cross-border transportation were reduced.

But overshadowing James’s comparative analysis of the supply shocks and rapid price movements that have shaped globalization is a broader question. What role—if any—is played by ideas of economists in accelerating or reversing global economic integration? “One of the most persistent debates in the analysis of globalization is the extent,” James writes, “to which it is shaped by ideas”—and therefore by people, living and dead.

Ideas, Great Men, and Economists

There is a considerable body of opinion inclined to see economic ideas as playing a peripheral role in understanding surges and retractions of economic globalization. This goes hand-in-hand with skepticism about the “Great Man” theory of history.

When Thomas Carlyle penned the phrase “The History of the world is but the Biography of great men,” he didn’t mean that all other factors shaping events were insignificant compared to, say, the pronouncements of an Alan Greenspan or Adam Smith’s choice to pen The Wealth of Nations. Rather, Carlyle believed that decisions made at particular points by specific individuals, or the ideas that they promoted, are decisive in understanding the “why” of human events.

Today it is not hard to find prominent politicians and intellectuals claiming that the economic liberalization that swept the world between roughly the late-1970s and 2001 owes much to market liberal economists like Milton Friedman and F. A. Hayek. Yet the sheer number of elements contributing to or undermining something as complicated as global economic integration is bound to raise questions about the veracity of this version of the Great Man thesis.

Ironically, James points out, many economists downplay the effects of intellectual influences in understanding economic changes. The Nobel economist George Stigler, James observes, thought that major economic changes like the Corn Laws’ repeal in 1846 should be understood, as Stigler himself wrote in 1976, as “the appropriate social response to a shift of political and economic power.” Stigler even conjectured that Britain would have embraced free trade anyway as the political weight of landed classes declined and the power of its commercial and industrial interests grew. Richard Cobden’s advocacy of free trade, and Sir Robert Peel’s decision to enact the reforms giving effect to these ideas, were, from Stigler’s standpoint, barely relevant.

James’s position fits neither the Great Man thesis nor Stigler’s mildly-deterministic position—and is all the more convincing for that. Unlike Stigler, James does not regard ideas as a sideshow in globalization’s advance or regression. Ideas coined by economists do help us understand why governments in the 1970s, for instance, started turning away from neo-Keynesian policies as they grappled with stagflation, or why the Federal Reserve deployed quantitative easing in response to the 2008 Financial Crisis. Neither economic liberalization in the 1970s nor the Fed’s embrace of QE emerged ex nihilo from an intellectual black hole.

Nevertheless, James stresses the limited policy impact of economists during such crises. He notes, for instance, that Reagan did not accept Friedman’s advice to abolish the Fed. Nor did Thatcher embrace Hayek’s advice to deal with inflation by delegating monetary policy to an independent central bank (let alone his proposals to de-nationalize money). Throughout the 1930s, British government officials certainly listened to John Maynard Keynes and read his articles. But there is little evidence of Keynes’ ideas putting a major dent in the sway of “the Treasury view” associated with the economist and civil servant Sir Ralph Hawtrey (a friend of Keynes) over British economic policy in these years.

What matters, in James’s view, is the “intellectual aura” which came to be associated with these figures like Hayek in the 1970s or Keynes in the 1930s. That credibility was important in lending intellectual legitimacy to widespread policy changes that occurred in the 1980s and 1940s. Crises of globalization are, James says, invariably characterized by a “reimagining” of “politics and political order.” Those economists whose ideas provide a basis for any reimagining of possibilities are the winners in the war of ideas.

To this, I would add that the aura to which James refers owes much to another factor: the willingness of particular thinkers to labor in the garden of ideas for long periods and undertake the often-unpopular task of questioning the orthodoxies of the time. Therein lies the significance of someone like Hayek sticking to his free-market guns when most of the economics profession went in the other direction. That type of persistence can provide such economists, whatever their specific claims, with the intellectual credibility that helps reshape the climate of ideas and makes what was once unthinkable suddenly very thinkable and even doable.

The Next Crisis

None of this means that economic thinkers draw the right conclusions or that policymakers make the correct decisions as supply shocks and price movements suddenly reveal deep inadequacies or unrealized possibilities in the global economy writ large. James’s book illustrates that they often don’t. The seven crises of globalization studied by James demonstrate that they were shaped by a heady mix of events, reactions, ideas, and choices. Understanding what is going on at the time, let alone developing correct policy responses, is extremely difficult.

This suggests two things. One is that the next crisis of globalization is essentially unknowable. That should give pause to those who persist in insisting that globalization is “inevitable” in a new iteration of a Hegelian “end of history” dialectic, or conversely, who maintain that we’re doomed to perpetual nation-versus-nation conflict because, in the end, we’re all Hobbesians. Second, many contemporary theories about what is occurring in the global economy will be rendered redundant whenever the next crisis occurs.

But if history is indeed the great magister, we can have some confidence that there are things to learn from comprehensive studies of previous crises associated with globalization. It is to Harold James’s credit that he has indeed provided us with such knowledge.