Collaborative Fund 2019
Five Lessons From History
Big takeaways about how, and why, people do what they do.
By Morgan Housel, The Collaborative Fund
Collaborative Fund is a leading source of capital for entrepreneurs pushing the world forward.
More at www.collaborativefund.com
Collaborative Fund 2019
“The dead outnumber the living fourteen to one, and we ignore
the accumulated experience of such a huge majority of mankind
at our peril.”
— Niall Ferguson on the lessons of history.
“History never repeats itself. Man always does.”
— Voltaire
The most important lessons from history are the takeaways that are
so broad they can apply to other fields, other eras, and other people.
That’s where lessons have leverage and are most likely to apply to
your own life.
But those things take some digging to find, often sitting layers below
the main story.
***
The Great Depression began with a stock market crash. October 24th,
1929. That’s the story, at least.
It makes for a good story because it’s a specific event on a specific
day. But if you were to go back to October 1929, during the crash,
the average American might seem unfazed. Only 2.5% of Americans
owned stocks in 1929.
The huge majority of Americans watched in amazement as the mar-
ket collapsed, and perhaps lost a sense of hope that they, too, might
someday cash in on Wall Street. But that was all they lost: a dream.
They did not lose any money because they had no money invested.
The real pain came nearly two years later, when the banks started to
fail.
Just over 500 U.S. banks failed in 1929. Twenty-three hundred failed
in 1931.
When banks fail, people lose their savings. When they lose their sav-
ings they stop spending. When they stop spending businesses fail.
When businesses fail, banks fail. When banks fail people lose their
savings. And so on endlessly.
Collaborative Fund 2019
The stock market crash wasn’t a relevant lesson to the vast majority
of Americans who didn’t own stocks in 1929 and likely never would
for the rest of their lives. But the bank failures upended the day-to-
day lives of tens of millions of Americans. That’s the real story of how
the Depression began.
As we look back at the Depression 90 years later, you might think the
main lesson is “don’t let the banks fail.” And it’s a good lesson.
But it’s also a lesson that’s not useful to many people today.
I don’t know.
And does it even apply to bank regulators in 2019, when things like
FDIC insurance now lower the odds of repeating the kind of consum-
er bank runs we saw in the 1930s?
Only a little, I’d say.
The point is that the more specific a lesson of history is, the less rel–
evant it becomes. That doesn’t mean it’s irrelevant. But the most im-
portant lessons from history are things that are so fundamental to the
behaviors of so many people that they’re likely to apply to you and
situations you’ll face in your own lifetime.
Let me offer one of those lessons from the Great Depression. I think
it’s one of the most important lessons of history:
Lesson #1: People suffering from sudden, unex–
pected hardship are likely to adopt views they
previously thought unthinkable.
One of the most fascinating parts of the Great Depressions isn’t just that
the economy collapsed, but how quickly and dramatically people’s views
changed when it did.
Americans voted Herbert Hoover into oce in 1928 with one of the biggest
landslides in history (444 electoral college votes). ey voted him out in
1932 with a landslide in the other direction (59 electoral college votes).
en the big changes began.
e gold standard, gone. Gold actually became illegal to own.
Public works, surged.
Attempts to provide taxpayer-funded old-age pension insurance
made no progress for decades, with supporters arrested on the Cap-
itol lawn during the most serious push after World War I. The De-
pression practically flipped a switch: a fringe idea was suddenly em–
braced. The Social Security Act was passed in 1935 372 to 33 in the
House of Representatives, and 77 to 6 in the Senate.
On the other side of this was an alleged coup by wealthy business-
men to overthrow Franklin Roosevelt, with a Marine General named
Smedley Butler taking his place as dictator, similar to fascist trends
sweeping Europe at the time.
These are not the kind of things that occur when people are sleep-
ing well and have stable jobs. It’s not until your life is upended, your
hopes dashed, your dreams uncertain that people begin to take ideas
they’d never consider before seriously.
Nowhere was this more powerful than in Germany, where the Great
Depression was preceded by a devastating hyperinflation that de–
stroyed all paper wealth.
The book What We Knew interviews German civilians after World
War II, seeking to understand how one of the most civilized cultures
turned so sharp, so quickly, and committed the worst atrocities in
