8 - Alternative policies and policy implications

Summary

History may not repeat itself, but some of its lessons are inescapable. One is that in the world of high and confident finance little is ever really new.

–J. K. Galbraith, 1987

Alternative policies

Policy errors helped to shape the rather unfortunate developments. Therefore the question arises, whether any alternative policies could have been more successful in containing the crisis and in preventing or alleviating the negative effects on economic activity.

Economists are in the unfortunate position of having no laboratory experiments at their disposal, so that their conclusions about policies that have not actually been used can only be circumstantial. Always keeping in mind the idiosyncrasies of any observed case, one can compare the fate of the Credit-Anstalt to that of other banks, and the fate of Austria to that of countries that followed different policies.

In addition to the Credit-Anstalt, there were three large banks in Vienna. Among those the Niederösterreichische Escompte-Gesell-schaft and the Wiener Bank-Verein had to be reorganized with government assistance in 1934. Their losses were considerably smaller than those of the Credit-Anstalt (in absolute as well as relative terms). The third one, the Länderbank, did not suffer any losses at all. This suggests that other, more cautious and sounder policies could have been followed. Managerial ineptitude played an important role. Therefore, alternative business policies could have limited or prevented some of the losses.