In London, the foreign exchange and money markets broke down early in the week beginning Monday 27 July. Continental bourses crashed and there were runs on savings banks. There was an immediate international scramble for liquidity – meaning the dumping of assets and the withdrawal of credit. This was the ‘Minsky moment’ when greed tuned to fear – collateral damage from the diplomatic crisis before a shot had been fired. Market perceptions of the risk of war were transformed by Austria’s belligerent ultimatum to Serbia on the evening of Thursday 23 July. After all, there had been Balkan crises in each of the previous three summers and all had been defused.
The markets took the murder in their stride. The countdown to war began with the assassination of Austrian Archduke Franz Ferdinand in Sarajevo on 28 June. It was the most extensive and acute global financial crisis ever. Some 50 countries around the world had financial crises with runs on banks and stock market slumps. Nevertheless, it was the most severe systemic financial crisis that London has ever experienced. Moreover, the crisis was effectively managed and, as it turned out, there was no headline-making casualty.
Every political, social, cultural and economic dimension of life was in crisis in summer 1914: there was nothing especially notable about the financial sector being in trouble. The life and death struggle was more important and dramatic than the financial disintegration. Why? Well, presumably because the financial crisis was overshadowed by the diplomatic crisis and then the military conflict. Several journalistic accounts appeared in 1915, but ever since it has been overlooked – until now, the 100th anniversary. The reason is straightforward – it is simply absent not only from general texts but also from most of the specialist literature. Despite its unrivalled severity, the financial crisis of 1914 is virtually unknown.
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