While the effect of financial crises on forming financial policy is well studied, less attention has been paid to how they produce ‘game changing’ turns that reinvent the context for regulatory reform, institutional design, and legitimate future conduct. The aftermath of crisis becomes an exercise in damage-limitation, but based on interpretation, debate, and narrative-building that creates a lasting memory of the crisis. We examine the contemporary perception and memory of the ‘Panic’ or ‘Founders Crisis’ of 1873 in the US and Germany, which had many common transatlantic origins. Yet the solutions could not have been more different because contemporaries created different narratives about this crisis. We highlight how the different language of legitimacy following the 1873 crisis reshaped long-term regulatory norms that discredited insiders in the US, yet encouraged committed, responsible insiders in Germany.
A Macroeconomic Model With Financially Constrained Producers and Intermediaries