The chairman of the Australian government’s Financial Sector Advisory Council, Paul Binsted, believes that bankers who have experienced financial crises are more cautious about taking risks. However, short of inducing a financial crisis to teach bankers a lesson, Binsted thinks that teaching bankers a history of financial crises will (hopefully) influence them to exercise self-restrain, consider the impact of their private actions on the public good and act more prudently.

On some level, the idealist in me would agree with both these propositions, certainly the first. The cynical me is, however, unpersuaded by the second claim.

While it is probably more true than not that those who have once been bitten would subsequently act more shyly, I find it hard to see how studying historical financial crises would improve the stability of our financial systems. After all, we have had a series of financial crises since the 1990s (one might argue even earlier) in a number of countries all over the world – these were presumably recent enough to be in the memories of those working in the financial sectors of New York and London in 2007 – and yet knowing about these other crises did not seemingly influence those bankers to take fewer risks and consider the impact of their actions on the broader economy and community.

Furthermore, while there are factors in common across the historical range of financial crises, there are also significant differences. Although the excessive growth of debt is a prelude to a crisis, how each crisis subsequently pans out differ. It is not trivial that at different junctures, different types of actors, institutions, financial products, and dynamics are implicated. Market actors may well learn from each crisis. They may even address weaknesses that were identified in previous crises. But they also learn to work with the market as it evolves to maximise their respective goals within the incentive structures that may be in place. “This Time is Different”, a large historical survey of financial crises by Carmen Reinhart and Kenneth Rogoff, is not so much a criticism of bankers’ inability to learn from history, but rather of their penchant for hubris. This time is different not because we do not know history, but because we think ourselves better than those who came before us.

What we need, in my view, is to address the incentive structures that are in place. Unless individuals are compelled to not just consider the impact of their actions on the wider economic system and community, but also share the burden of any pain that may be inflicted, it is unlikely that they would rein in their impulse to advance their own self-interests. The alternative is to limit the range of activities that bankers and financial institutions can undertake in order to limit their potential (negative) impact. Despite the GFC, neither change appear to be palatable on the policy-making front.

Notwithstanding these reservations, I cannot disagree with Binsted’s encouragement of bankers to learn a history of financial crises. As with many others in my profession, I tend to see the virtue of learning — even if it is only for its own sake. Indeed, I would nominate my employer, the University of Melbourne, as a potential host for such a course! My cynicism about bankers changing their behaviour as a result of learning from history may well be proven wrong – if so, I would be the first to be delighted.

Why, however, limit the study of the history of financial crises to those working in the financial sector? All of us who live in modern, complex and globally integrated societies should be educated in not just the nature of financial crises, but also the nature of the governance of our modern, global economy.

Why? While it would be highly desirable if bankers were to exercise self-restrain in taking risks, it would be better if we also had an informed wider public who can exercise vigilance and contribute to the policy debate in this area. This has for a long time been an Achilles’ heel in the governance of the modern economy.

While there are many NGOs and civil society groups lobbying on a range of issues to do with trade in “real” goods (think fair trade coffee, animal rights in the fashion industry, labour standards in manufacturing), most of us will struggle to identify groups who make similar demands on the financial front.

This absence of social activism on financial issues is attributable in part, I believe, to the lack of knowledge and understanding of the financial sector among the wider public. They in turn have a lower incentive to acquire this knowledge for at least two reasons. The average person does not conduct as many transactions in a variety of financial products as they trade in goods. Second, financial transactions are not as high in the consciousness of the average person as transactions in goods because the former are less visible.

Of course, bankers should know and understand the history of financial crises, but so also should the wider public. In an earlier time, when economies were simpler and less integrated across borders, we might perhaps have been able to dismiss the need to acquire such knowledge. This position is certainly less tenable today. We need only to cast our eyes over the diversity of people and institutions (like local councils) who have been affected by the GFC to see the substance of this point.

Unless more people inform themselves about the nature of the financial system and of its governance, they will not be able to contribute to the policy-making process in an effective manner. Consequently, policy-making on financial issues will only be dominated by others (bankers, business actors) who may not share the same interests as those of the wider community. The result? Well, I think that is self evident.