Unfortunately, the war damaged the system beyond repair. Britain—the key country—was left with only modest gold reserves, 7.5 percent of the world total in 1925. Together, the United States and France held more than half the world's gold. The war had expanded U.S. reserves, and when France returned to gold, it did so at an undervalued exchange rate that boosted exports and gold reserves. Meanwhile, German reparations to Britain and France would equal $2.4 trillion today, says Ahamed. In turn, Britain and France owed the equivalent of $800 billion and $1.4 trillion, respectively, to the United States. The global financial system was so debt-laden and interconnected that it "cracked at the first pressure."

That came after 1928, when a rise in American interest rates forced other countries to follow (no one wanted to lose gold by having investors shift funds elsewhere) and ultimately led to the 1929 stock-market crash. As economies weakened, debts went into default. Bank panics ensued. Credit and industrial production declined. Unemployment rose. Weakness fed on weakness.

Sadly, this tragedy has modern parallels. As in the 1930s, a worldwide credit collapse is a danger. Global stock, bond and bank markets are interwoven. Losses in one may prompt pullbacks in others. Money flows to 28 emerging-market countries in 2009 will drop 80 percent from 2007 levels, estimates the Institute of International Finance. There are currency misalignments that, as in the 1920s, have distorted trade. China's renminbi is wildly undervalued. Indeed, global industrial production and trade are falling faster now than early in the Depression, report economists Eichengreen of the University of California, Berkeley, and Kevin H. O'Rourke of Trinity College Dublin.

Still, striking differences separate now from then. The biggest is the response of governments, which—unencumbered by the gold standard—have eased credit, propped up financial institutions and increased spending to arrest an economic free fall. The Federal Reserve and the International Monetary Fund have made loans of dollars and other hard currencies available to emerging-market countries to offset the loss of private credit. Nor is there anything like the international rancor that followed World War I and, at crucial junctures, impeded cooperation: in 1931, the French balked at rescuing Austria's biggest bank (Creditanstalt), whose failure triggered a chain reaction of European panics.

When countries left the gold standard—Franklin Roosevelt effectively took the United States off gold in 1933—their economies began to recover. Some indicators now imply that the present decline is ebbing ("glimmers of hope," says the president). China shows similar signs of improvement. All this suggests that the dreary comparisons with the Great Depression will remain just that. But if these encouraging omens prove false, a more somber conclusion could emerge.

The mistakes of the Depression were largely rooted in prevailing economic orthodoxies, which had been overtaken by new and misunderstood realities. The present policies likewise reflect today's economic orthodoxies. But what if they, too, turn out to be misguided because the world economy has moved on in ways that become obvious mostly in retrospect?

© 2009