Conclusion: The Lessons of History

It is time to pull the threads of the argument together. But before we do, there remains one difficult, unanswered question: Does it make a difference if there is no lender of last resort? For one thing, for most of the financial crises covered from 1720 to 1988, both national and international, a lender of last resort did swing into action in response to the pressures of the market—though often protesting all the way. The role was not always dispatched with efficiency, so that a refined analysis would categorize the aftermath of crises not only by the presence or absence of a lender of last resort but also by how well the role was discharged. Second, the aftermath of a depression depends not just on how the crisis was handled but on a host of other variables, especially the factors affecting long-term investment: population growth, the existence of a frontier, demands arising from war, exports, the presence or absence of innovations that are not fully exploited, and the like. A speculative crisis like that of 1847 in England was likely in any eveny to be pulled quickly back into prosperity by renesed investment in railroads, regardless of whether the Bank of England suspended the Bank Act of 1844 and stood ready to provide liquidity to all borrowers with sound collateral.