11 ms·

A Batesian Mimicry Explanation of Business Cycles (2010)

42 points by applecore 13y ago

carsongross 13y ago
For those of you unfamiliar with the austrian explanation of the business cycles, here is layman's intro via an excerpt from a talk given by the always-excellent-whether-I-agree-with-him-or-not Tom Woods: https://www.youtube.com/watch?v=5K4Os5eXPw4 https://www.youtube.com/watch?v=5K4Os5eXPw4 (Personally, I think the orthodox austrians generally undervalue the mass-psychological explanations of things when they dip into rational-actor assumptions, but I still find their explanation compelling.)
- sitkack 13y ago
  Shitty stereos on the 80s. Brands 'mimicked' themselves to get extra profit since consumers signaled off of the logo, the chrome and heft not the sound.
  - carsongross 13y ago
    I think that the austrians would respond (and, again, I'm not an orthodox austrian) that value is subjective and, if consumers find that chrome and logos are what make stereos valuable, then that's the way it is. Perhaps the social-marker value when less knowledgable friends visit, or the general aesthetic look of their living room, is what's important to them. After a while, if the consumers really could tell the difference in sufficient numbers to warrant large scale production, superior stereos should win out. I dislike shoddy stuff generally and how much brand matters (it matters to me, too, why oh why!?) so I don't intrinsically like that argument, but I understand the rational power of it. It implies, in as much as we should be angry with someone, we should be angry at ignorant consumers, rather than evil producers for shoddy stuff. And the stunningly great news is that we can fight that problem by simply blogging about what we are passionate about. This is one of the great benefits of the internet I did not expect: the spread of knowledge across consumers has dramatically increased the quality of many things. To pick a few examples: - I can get a cappuccino in Sacramento, CA that would have been available in only a few cities in the world two decades ago. - There are more beers worth drinking being brewed within 50 miles of my house right now than there were in all of California in the 70's. - There has been an absolute explosion in high quality, low cost mechanical watches in the last ten years (see stowa, chris ward, and steinhart, to name a few) EDIT: I pick these examples to show how the internet has improved even old-fashioned, extremely non-digital things through the spread of knowledge. In any event, I'm drifting dramatically OT...
    - csentropy 13y ago
      Also, if some producers misunderstand consumer preferences, thinking that they would want a shiny stereo when in fact they wanted a better sounding stereo, those producers would be out of business or forced to eliminate their product line. That is why it is stupid to impose third party valuation of consumer preferences. If most people want shiny stereos that sound horrible, that is what should be produced (the moral argument), whether or not a few connoisseurs like it.
    - sitkack 13y ago
      I am not blaming anyone. Stereo equipment got very popular in the 70s and in the 80s it became very cheap to produce good enough electronics, so high valued brands effectively did a hostile takeover of themselves and burned their product lines down making things that mimicked their earlier higher quality goods. There are a relatively small number of participants in any system doing stuff that is new or truly creative, everyone else copies the leader. First it was netbooks, then it was tablets. Markets I think are sprouted by first movers, who after fail, and truly grown by an army of mimics.
- csentropy 13y ago
  I think that the mass psychological explanations are not undervalued by austrians, just given their right prominence. We all know that errors in allocation of capital and pricing of assets happen all the time in the market. But, most errors are corrected as information manifests to reprice them and reallocate resources, from losing actors to winning actors and everyone learns a lesson. What the austrian business cycle explains is the systemic errors (Called the cluster of errors) that happen when central banks allow the errors to propagate and grow by effectively delaying and amplifying their propagation manipulation of interest rates and money supply.
- vajrabum 13y ago
  Personally, I think that Austrian economists generally undervalue empiricism. Ludwig von Mises himself wrote of his theory: ”Its statements and propositions are not derived from experience... They are not subject to verification or falsification on the ground of experience and facts." and F.A. Hayek wrote that any theories in the social sciences can "never be verified or falsified by reference to facts."
tlb 13y ago
The assumption here is that business cycle busts are caused by the inevitable collapse of companies that weren't sincere about creating a sustainable business in the first place. There are plenty of anecdotes to color in this story, but I don't believe it's the main driver of business cycles. EDIT: Admittedly, I'm in a filter bubble of sincerity, since it's one of the main things we look for in YC founders.
- aston 13y ago
  The author's theory allows not just for insincere entrepreneurs but also incompetent ones. No matter how strongly an entrepreneur believes his idea to be a billion dollar business, it's very possible that it isn't, even if he's able to convince investors (and himself) that it could be based on some superficial metrics.
  - dnautics 13y ago
    Right, and the the incompetence can be subtle and from many causes, such as poor management skills, just-less-than-necessary technical capability, in addition to the standard Dunning-Kruger effect, and cargo cultists who identify superficial qualities of entrepreneurships. Ironically, in an entrepreneur you want just the right amount of impostor syndrome, but the process may select for Dunning-Krugers.
- zby 13y ago
  Not necessarily - an honest mistake would do as well - the point is that the companies that make that mistake get the funding.
- sitkack 13y ago
  But sincerity and youthful exuberance is a startup founder stereo type. People do go life coaches to manufacture a Win Friends and Influence People Tom Cruise persona precisely because they are seen as indicators of success by funders. When you over select on certain qualities, those qualities will be mimicked. In business, correlation is causation.
washedup 13y ago
Great read. I look forward to the day when Economic graduate programs are taught from a more biological/psychological perspective than through aggregate supply/demand and equilibria models. The real issue here is that macroeconomic systems cannot be predicted or successfully controlled, but they can surely be made more robust. The current policies in practice are potentially dangerous.
- csentropy 13y ago
  Nothing excites people like a false analogy. Looking to biology to model how economies work is like looking at stars and movements of heavenly bodies to see how stock prices change. I can find a thousand things common between them, but you know how accurate that science is.
  - sitkack 13y ago
    | Looking to biology to model how economies work is like looking at stars and movements of heavenly bodies to see how stock prices change. ha!
    - ejk314 13y ago
      Except that analogy of those analogies is itself a false analogy. Bouncing models off each other is a typical mechanic of scientific innovation. No one is suggesting economists take the theories as wrote and apply them without due consideration.
      - sitkack 13y ago
        I know, i love the analogy minefield, it is totally a slippery slope. Once you make one you make ten. And then it goes all to hell in handbasket. In seriousness though, economics is a biological system. If anyone says otherwise, they are fool.
        csentropy 12y ago
lifeisstillgood 13y ago
In brief: animals who are not poisonous or dangerous copy the markings / signals of animals who are and thus gain protection of being vicious killers without the metabolic cost. This article posits that all the woes of Capitalism are due to copycat entrepreneurs offering "facebook for dogs" and eventually the investment that would go to killer companies to create wealth simply vanishes I cry rubbish here. Firstly he destroys his argument in the article himself ("""alternatively, one could remember the rule "Red on yellow, kill a fellow; red on black, friend of Jack" """). Fairly simple rules of thumb allow even not-so-smart-money to avoid Facebook for dogs. Secondly mimicry is only a useful defence against predators of the killers. Killer snake happily kill non-poisonous snakes as well as prey. And finally, Hy Minsky seems to have this already sewn up - Hedging, Speculating, Ponzi. Sidenote: my all time favourite Batesian mimicry is the Cheetah cub, (http://milgistrust.wildlifedirect.org/files/2009/01/23.12.08-cheetah-cub.jpg http://milgistrust.wildlifedirect.org/files/2009/01/23.12.08...) whose colouring reflects that of the adult Honey Badger. Honey Badgers are great, such vicious fighters that lions basically think "I'll leave that for another day" - the animal kingdom's equivalent of short hairless Glaswegian pub landlords.
- washedup 13y ago
  It's not a "woe of Capitalism", just an inherent property of an economy. In fact, it's an inherent property of all life. Economic cycles and life/death cycles in species have a lot in common. The dynamic nature of such systems make them hard to predict, but you can be sure that they will continue to occur. It's a way of resetting (or reallocating) resources that is essential.
  - lifeisstillgood 13y ago
    An interesting point - thank you. I was just listening to a bbc podcast on Minsky, and while everyone agreed that previous economics failed to predict their instability, everyone now thinks Minsky is the key to preventing instability - but no one mentioned that actually death is part of life and we need not to prevent the next crisis, just not let it cause such damage. Harm reduction as public policy - whatever next
josephlord 13y ago
Steve Keen's model (http://www.debtdeflation.com/blogs/manifesto/ http://www.debtdeflation.com/blogs/manifesto/) seems to provide a convincing explanation to me. Basically that debt growth (and acceleration) are key to understanding the business cycle and crashes. He has an open source Kickstarter dynamic modelling tool called Minsky (http://www.debtdeflation.com/blogs/minsky/ http://www.debtdeflation.com/blogs/minsky/). Alarmingly the models used by mainstream economists don't seem to cover crashes (not as in can't predict their timing but really can't model them at all generally).
- dnautics 13y ago
  I'm highly sympathetic to austrian explanations of economics, and somewhat to chartalist explanations* (but I don't generally agree with chartalist prescriptions) but I'm unconvinced that debt causes crashes. I personally believe that debt systems aggregate small, localized crashes which happen all the time into large, systemic crashes. A good resource is Mandelbrot's (mis)behavior of markets. It explains a lot of things like how the Pareto principle appears. Reading between the lines, it is easy to see how levy-alpha-stable distributed events can aggregate into bigger levy-alpha-stable distributed events, since this distribution obeys the undefined-variance equivalent of the central limit theorem. *The "QE for the public" is a horrible public policy choice and to me is exactly a good example of where chartalist prescriptions go off the rails. The Jubilee is a better idea, but to prevent a total collapse of the banking system, you could structure it differently, like making all debts voluntary. Basically our society has been trending towards this (with currently the exception of educational debts) and so what we are seeing is that people with good credit that don't spend their line of credit boozing through their twenties being highly valued. But because lending from individuals is becoming tapped out as their credit is wasted, a lot of debts have become shifted to the public, in the form of municipal, state, and federal debt - sometimes through public spending and sometimes by explicitly converting private debt into public debt.
  - josephlord 13y ago
    I might look into the Mandelbrot book. From my perspective if you accept that GDP is the economy's production plus the change in aggregate debt it seems a small step to see how debt growth builds during the boom and stops suddenly reducing spending to form the crash. Debt in itself is not bad but in the absence of stabilisation it is likely to cause problems. I quite like his Modern Jubilee idea a.k.a. QE for the public (although it is an alternative to TARP and the QE that took place in the midst of the 08/09 crisis not for now) I'm not sure how a traditional Jubilee would work and how it would stabilise the banks at all. The Jubilee Shares are the Keen policy I don't quite buy.
dnautics 13y ago
I feel like this is also a suitable explanation of the impending correction that needs to happen in scientific research. We promote scientists who are adept at Batesian mimicry of the scientific power structure, and not necessarily adept at science.
m0llusk 13y ago
This piece assumes that the mimics lack value, but realistic analysis of market development shows that copycat products often win more customers and profits than early market entries. This process of mimicry is critical to how markets enable adaptation of ideas to demand. The problem is that it is impossible to evaluate what participants in a rush will ultimately be successful. Bubbles come from anticipated value increases. Similarly market cycles could be the result of other forms of phantom value accumulating in trading networks.
vajrabum 13y ago
I liked the article. I think it captures something real. However it dismisses out of hand without discussions any number of other theories which do in fact have at least some explanatory or predictive value--exogenous shocks (i.e. gas crisis of the 1970s), credit/debt cycle, inventory cycle, interest rate cycle, fixed-investment cycle, and the 60 year Kondratiev waves which may be driven by a new technology introduction cycle. It also ignores recessions and depressions that don't fit it's thesis. See here http://en.wikipedia.org/wiki/Business_cycle http://en.wikipedia.org/wiki/Business_cycle.
kristianp 13y ago
This theory (is it a theory?) sounds good, but as someone else here implied, those who copy aren't employing mimicry, but are actually trying to compete with those they copy. I would say that the bubbles are closer to biological arms races than biological mimicry. The irrational exuberance is met by companies that are competing to be the most successful in exploiting that exuberance. Hence Enron's success at being one of the best performers on the market until its bust. I'm sure this stuff has been explained before, but it doesn't seem to be part of any popular economic theory?
ArkyBeagle 13y ago
Two things: 1) It's a history book, not particularly an econ book, but "Nation of Deadbeats" covers this well. Each boom-bust cycle is actually quite unique, and most of them are caused by human action and not spontaneous. 2) In the 20th Century, just about all depressions, recessions and hyperinflations were monetary in nature. The ones that were not were due to failed states. A lot of this was due to the gold standard - which is nearly tautological - because since the gold standard was in play, we saw those pathologies. Douglas A. Irwin has a paper "Did France Cause the Great Depression?" that was an eye-opener for me. It actually describes a real mechanism.

42 points by applecore 13y ago

For those of you unfamiliar with the austrian explanation of the business cycles, here is layman's intro via an excerpt from a talk given by the always-excellent-whether-I-agree-with-him-or-not Tom Woods: https://www.youtube.com/watch?v=5K4Os5eXPw4 https://www.youtube.com/watch?v=5K4Os5eXPw4 (Personally, I think the orthodox austrians generally undervalue the mass-psychological explanations of things when they dip into rational-actor assumptions, but I still find their explanation compelling.)

sitkack 13y ago
Shitty stereos on the 80s. Brands 'mimicked' themselves to get extra profit since consumers signaled off of the logo, the chrome and heft not the sound.
- carsongross 13y ago
  I think that the austrians would respond (and, again, I'm not an orthodox austrian) that value is subjective and, if consumers find that chrome and logos are what make stereos valuable, then that's the way it is. Perhaps the social-marker value when less knowledgable friends visit, or the general aesthetic look of their living room, is what's important to them. After a while, if the consumers really could tell the difference in sufficient numbers to warrant large scale production, superior stereos should win out. I dislike shoddy stuff generally and how much brand matters (it matters to me, too, why oh why!?) so I don't intrinsically like that argument, but I understand the rational power of it. It implies, in as much as we should be angry with someone, we should be angry at ignorant consumers, rather than evil producers for shoddy stuff. And the stunningly great news is that we can fight that problem by simply blogging about what we are passionate about. This is one of the great benefits of the internet I did not expect: the spread of knowledge across consumers has dramatically increased the quality of many things. To pick a few examples: - I can get a cappuccino in Sacramento, CA that would have been available in only a few cities in the world two decades ago. - There are more beers worth drinking being brewed within 50 miles of my house right now than there were in all of California in the 70's. - There has been an absolute explosion in high quality, low cost mechanical watches in the last ten years (see stowa, chris ward, and steinhart, to name a few) EDIT: I pick these examples to show how the internet has improved even old-fashioned, extremely non-digital things through the spread of knowledge. In any event, I'm drifting dramatically OT...
  - csentropy 13y ago
    Also, if some producers misunderstand consumer preferences, thinking that they would want a shiny stereo when in fact they wanted a better sounding stereo, those producers would be out of business or forced to eliminate their product line. That is why it is stupid to impose third party valuation of consumer preferences. If most people want shiny stereos that sound horrible, that is what should be produced (the moral argument), whether or not a few connoisseurs like it.
  - sitkack 13y ago
    I am not blaming anyone. Stereo equipment got very popular in the 70s and in the 80s it became very cheap to produce good enough electronics, so high valued brands effectively did a hostile takeover of themselves and burned their product lines down making things that mimicked their earlier higher quality goods. There are a relatively small number of participants in any system doing stuff that is new or truly creative, everyone else copies the leader. First it was netbooks, then it was tablets. Markets I think are sprouted by first movers, who after fail, and truly grown by an army of mimics.
csentropy 13y ago
I think that the mass psychological explanations are not undervalued by austrians, just given their right prominence. We all know that errors in allocation of capital and pricing of assets happen all the time in the market. But, most errors are corrected as information manifests to reprice them and reallocate resources, from losing actors to winning actors and everyone learns a lesson. What the austrian business cycle explains is the systemic errors (Called the cluster of errors) that happen when central banks allow the errors to propagate and grow by effectively delaying and amplifying their propagation manipulation of interest rates and money supply.
vajrabum 13y ago
Personally, I think that Austrian economists generally undervalue empiricism. Ludwig von Mises himself wrote of his theory: ”Its statements and propositions are not derived from experience... They are not subject to verification or falsification on the ground of experience and facts." and F.A. Hayek wrote that any theories in the social sciences can "never be verified or falsified by reference to facts."

tlb 13y ago

The assumption here is that business cycle busts are caused by the inevitable collapse of companies that weren't sincere about creating a sustainable business in the first place. There are plenty of anecdotes to color in this story, but I don't believe it's the main driver of business cycles. EDIT: Admittedly, I'm in a filter bubble of sincerity, since it's one of the main things we look for in YC founders.

aston 13y ago
The author's theory allows not just for insincere entrepreneurs but also incompetent ones. No matter how strongly an entrepreneur believes his idea to be a billion dollar business, it's very possible that it isn't, even if he's able to convince investors (and himself) that it could be based on some superficial metrics.
- dnautics 13y ago
  Right, and the the incompetence can be subtle and from many causes, such as poor management skills, just-less-than-necessary technical capability, in addition to the standard Dunning-Kruger effect, and cargo cultists who identify superficial qualities of entrepreneurships. Ironically, in an entrepreneur you want just the right amount of impostor syndrome, but the process may select for Dunning-Krugers.
zby 13y ago
Not necessarily - an honest mistake would do as well - the point is that the companies that make that mistake get the funding.
sitkack 13y ago
But sincerity and youthful exuberance is a startup founder stereo type. People do go life coaches to manufacture a Win Friends and Influence People Tom Cruise persona precisely because they are seen as indicators of success by funders. When you over select on certain qualities, those qualities will be mimicked. In business, correlation is causation.

washedup 13y ago

Great read. I look forward to the day when Economic graduate programs are taught from a more biological/psychological perspective than through aggregate supply/demand and equilibria models. The real issue here is that macroeconomic systems cannot be predicted or successfully controlled, but they can surely be made more robust. The current policies in practice are potentially dangerous.

csentropy 13y ago
Nothing excites people like a false analogy. Looking to biology to model how economies work is like looking at stars and movements of heavenly bodies to see how stock prices change. I can find a thousand things common between them, but you know how accurate that science is.
- sitkack 13y ago
  | Looking to biology to model how economies work is like looking at stars and movements of heavenly bodies to see how stock prices change. ha!
  - ejk314 13y ago
    Except that analogy of those analogies is itself a false analogy. Bouncing models off each other is a typical mechanic of scientific innovation. No one is suggesting economists take the theories as wrote and apply them without due consideration.
    - sitkack 13y ago
      I know, i love the analogy minefield, it is totally a slippery slope. Once you make one you make ten. And then it goes all to hell in handbasket. In seriousness though, economics is a biological system. If anyone says otherwise, they are fool.
      - csentropy 12y ago

lifeisstillgood 13y ago

In brief: animals who are not poisonous or dangerous copy the markings / signals of animals who are and thus gain protection of being vicious killers without the metabolic cost. This article posits that all the woes of Capitalism are due to copycat entrepreneurs offering "facebook for dogs" and eventually the investment that would go to killer companies to create wealth simply vanishes I cry rubbish here. Firstly he destroys his argument in the article himself ("""alternatively, one could remember the rule "Red on yellow, kill a fellow; red on black, friend of Jack" """). Fairly simple rules of thumb allow even not-so-smart-money to avoid Facebook for dogs. Secondly mimicry is only a useful defence against predators of the killers. Killer snake happily kill non-poisonous snakes as well as prey. And finally, Hy Minsky seems to have this already sewn up - Hedging, Speculating, Ponzi. Sidenote: my all time favourite Batesian mimicry is the Cheetah cub, (http://milgistrust.wildlifedirect.org/files/2009/01/23.12.08-cheetah-cub.jpg http://milgistrust.wildlifedirect.org/files/2009/01/23.12.08...) whose colouring reflects that of the adult Honey Badger. Honey Badgers are great, such vicious fighters that lions basically think "I'll leave that for another day" - the animal kingdom's equivalent of short hairless Glaswegian pub landlords.

washedup 13y ago
It's not a "woe of Capitalism", just an inherent property of an economy. In fact, it's an inherent property of all life. Economic cycles and life/death cycles in species have a lot in common. The dynamic nature of such systems make them hard to predict, but you can be sure that they will continue to occur. It's a way of resetting (or reallocating) resources that is essential.
- lifeisstillgood 13y ago
  An interesting point - thank you. I was just listening to a bbc podcast on Minsky, and while everyone agreed that previous economics failed to predict their instability, everyone now thinks Minsky is the key to preventing instability - but no one mentioned that actually death is part of life and we need not to prevent the next crisis, just not let it cause such damage. Harm reduction as public policy - whatever next

josephlord 13y ago

Steve Keen's model (http://www.debtdeflation.com/blogs/manifesto/ http://www.debtdeflation.com/blogs/manifesto/) seems to provide a convincing explanation to me. Basically that debt growth (and acceleration) are key to understanding the business cycle and crashes. He has an open source Kickstarter dynamic modelling tool called Minsky (http://www.debtdeflation.com/blogs/minsky/ http://www.debtdeflation.com/blogs/minsky/). Alarmingly the models used by mainstream economists don't seem to cover crashes (not as in can't predict their timing but really can't model them at all generally).

dnautics 13y ago
I'm highly sympathetic to austrian explanations of economics, and somewhat to chartalist explanations* (but I don't generally agree with chartalist prescriptions) but I'm unconvinced that debt causes crashes. I personally believe that debt systems aggregate small, localized crashes which happen all the time into large, systemic crashes. A good resource is Mandelbrot's (mis)behavior of markets. It explains a lot of things like how the Pareto principle appears. Reading between the lines, it is easy to see how levy-alpha-stable distributed events can aggregate into bigger levy-alpha-stable distributed events, since this distribution obeys the undefined-variance equivalent of the central limit theorem. *The "QE for the public" is a horrible public policy choice and to me is exactly a good example of where chartalist prescriptions go off the rails. The Jubilee is a better idea, but to prevent a total collapse of the banking system, you could structure it differently, like making all debts voluntary. Basically our society has been trending towards this (with currently the exception of educational debts) and so what we are seeing is that people with good credit that don't spend their line of credit boozing through their twenties being highly valued. But because lending from individuals is becoming tapped out as their credit is wasted, a lot of debts have become shifted to the public, in the form of municipal, state, and federal debt - sometimes through public spending and sometimes by explicitly converting private debt into public debt.
- josephlord 13y ago
  I might look into the Mandelbrot book. From my perspective if you accept that GDP is the economy's production plus the change in aggregate debt it seems a small step to see how debt growth builds during the boom and stops suddenly reducing spending to form the crash. Debt in itself is not bad but in the absence of stabilisation it is likely to cause problems. I quite like his Modern Jubilee idea a.k.a. QE for the public (although it is an alternative to TARP and the QE that took place in the midst of the 08/09 crisis not for now) I'm not sure how a traditional Jubilee would work and how it would stabilise the banks at all. The Jubilee Shares are the Keen policy I don't quite buy.

dnautics 13y ago

I feel like this is also a suitable explanation of the impending correction that needs to happen in scientific research. We promote scientists who are adept at Batesian mimicry of the scientific power structure, and not necessarily adept at science.

m0llusk 13y ago

This piece assumes that the mimics lack value, but realistic analysis of market development shows that copycat products often win more customers and profits than early market entries. This process of mimicry is critical to how markets enable adaptation of ideas to demand. The problem is that it is impossible to evaluate what participants in a rush will ultimately be successful. Bubbles come from anticipated value increases. Similarly market cycles could be the result of other forms of phantom value accumulating in trading networks.

vajrabum 13y ago

I liked the article. I think it captures something real. However it dismisses out of hand without discussions any number of other theories which do in fact have at least some explanatory or predictive value--exogenous shocks (i.e. gas crisis of the 1970s), credit/debt cycle, inventory cycle, interest rate cycle, fixed-investment cycle, and the 60 year Kondratiev waves which may be driven by a new technology introduction cycle. It also ignores recessions and depressions that don't fit it's thesis. See here http://en.wikipedia.org/wiki/Business_cycle http://en.wikipedia.org/wiki/Business_cycle.

kristianp 13y ago

This theory (is it a theory?) sounds good, but as someone else here implied, those who copy aren't employing mimicry, but are actually trying to compete with those they copy. I would say that the bubbles are closer to biological arms races than biological mimicry. The irrational exuberance is met by companies that are competing to be the most successful in exploiting that exuberance. Hence Enron's success at being one of the best performers on the market until its bust. I'm sure this stuff has been explained before, but it doesn't seem to be part of any popular economic theory?

ArkyBeagle 13y ago

Two things: 1) It's a history book, not particularly an econ book, but "Nation of Deadbeats" covers this well. Each boom-bust cycle is actually quite unique, and most of them are caused by human action and not spontaneous. 2) In the 20th Century, just about all depressions, recessions and hyperinflations were monetary in nature. The ones that were not were due to failed states. A lot of this was due to the gold standard - which is nearly tautological - because since the gold standard was in play, we saw those pathologies. Douglas A. Irwin has a paper "Did France Cause the Great Depression?" that was an eye-opener for me. It actually describes a real mechanism.