This is part 8 of Crisis Money, a Money Outsider series about what financial crises do to our minds, and what our minds do back. It stands on its own, but part 7 covered the British herd.
In 1940, the British government asked its citizens to accept that from now on, every adult would receive exactly one egg per week. Four ounces of bacon. Two ounces of butter. Eight ounces of sugar. Two ounces of tea. The quantities were precise, printed on ration books, enforced by law. And the public response was not what you might expect.
Mass Observation, the social research organisation that had been recording British opinion since 1937, surveyed attitudes to rationing throughout the war. More than half of those surveyed approved. Only 14 per cent expressed dissatisfaction.1 This was not reluctant compliance with wartime necessity. People actively supported the system. They reported feeling that rationing was fair, that it bound the country together, that the duchess and the dustman were finally eating from the same menu.
Now jump forward seventy years. In 2010, a different government asks the British public to accept a different kind of sacrifice. Spending cuts, benefit reductions, frozen public sector wages, a squeeze on services. The stated reason is similar: the country faces an emergency, everyone must play their part. But the response is profoundly different. Instead of solidarity, there is anger. Instead of compliance, there is a slow-burning resentment that reshapes British politics for the next decade.
The gap between these two moments is not explained by the severity of the sacrifice. Rationing was objectively more restrictive than austerity. People had less food, less fuel, less freedom of choice about basic consumption. The gap is explained by something else entirely: whether the sacrifice felt fair.
This piece and the next are about the deal that exists between citizens and the institutions that govern their financial lives. It is about what happens when that deal holds, what happens when it breaks, and why the feeling of fairness matters more to your financial brain than the actual size of the loss. Along the way, we will pass through a bank run that was entirely rational, an ideology dressed up as arithmetic, an inflation crisis that damaged something deeper than purchasing power, and a government wage scheme that briefly restored a contract most people had forgotten existed.
This connects to what we have already seen. Fear makes you sell at the bottom. The herd pulls you towards whatever everyone else is doing. But underneath both of these, there is a more fundamental question: do you believe the system is fair? Your answer to that question determines how much damage everything else can do. It also shapes the narratives we construct to explain crises, the cognitive toll of financial pressure, the silence around money in British culture, the identity we attach to property, and the financial trauma we inherit from our parents.
We should start, though, with a laboratory experiment about splitting money with strangers.
The fairness instinct
In 1982, three German economists named Werner Guth, Rolf Schmittberger and Bernd Schwarze published a paper that should have settled an argument. The experiment was simple. Two players. One gets a sum of money and proposes how to split it. The other can accept the split (both keep their share) or reject it (both get nothing). Rational self-interest predicts that the second player should accept any offer above zero. A pound is better than nothing. A penny is better than nothing.
That is not what happened. Offers below about 20 per cent of the total were rejected roughly half the time.2 People walked away with nothing rather than accept a split they considered unfair. The experiment has been replicated hundreds of times, in dozens of countries, with stakes ranging from pocket change to several months' salary. In one well-known set of studies, the stakes were equivalent to three months' income for the participants. Even then, the rejection rate for low offers remained high. The basic finding holds: human beings will pay a real financial cost to punish what they perceive as unfairness.
The cross-cultural variation is telling. When Joseph Henrich and his colleagues ran ultimatum games in fifteen small-scale societies around the world, they found striking differences.3 Among the Machiguenga of Peru, offers averaged 26 per cent and were almost always accepted. Among the Lamalera whale hunters of Indonesia, offers regularly exceeded 50 per cent. The differences mapped onto each society's economic structure: communities with more market integration and more cooperative production made more generous offers and rejected low offers more often. Fairness norms are not hardwired at a single setting. They are calibrated by the economic world you grow up in.
In 1999, Ernst Fehr and Klaus Schmidt formalised this into a mathematical model.4 Their paper in the Quarterly Journal of Economics proposed that people experience two kinds of inequality discomfort. Being worse off than others hurts. But being better off than others also produces discomfort, just less of it. In their model, the pain of disadvantageous inequality is roughly twice as strong as the discomfort of advantageous inequality. The exact ratio varies across studies, from about 1.6 to 2.7 depending on the methodology, but the direction is consistent. We hate getting less than our fair share more than we feel guilty about getting more.
George Akerlof and Robert Shiller identified fairness as one of the five "animal spirits" driving economic behaviour.5 Their argument was that mainstream economics had made a catastrophic error: modelling humans as pure self-interest maximisers, when actually the perception of fairness shapes every significant economic decision, from wage negotiations to consumer spending to responses to government policy.
What makes the ultimatum game so useful as a lens for crisis psychology is that it strips away every complicating factor. There is no ideology, no political party, no newspaper editorial telling you how to feel. There are just two people and a sum of money. And even in that bare setting, with real money on the table, people consistently choose to punish unfairness at a cost to themselves. They do it quickly, instinctively, without agonising over the decision. The fairness assessment comes first. The financial calculation comes second.
This matters for crisis psychology because it means people's willingness to accept financial hardship depends heavily on whether the sacrifice feels fairly distributed. When it does, compliance is high and psychological damage is limited. When it does not, the same objective hardship produces rage, political upheaval, and lasting institutional distrust. The size of the loss is not the variable that matters most. The distribution is.
Wartime, the fair sacrifice
The British rationing system that began in January 1940 lasted, in various forms, for fourteen years. Bacon, butter and sugar were rationed first. Meat followed in March 1940, tea and margarine later that year. By mid-1942, practically everything edible was either rationed or subject to price controls. Bread, which had not been rationed during the war itself, was rationed from 1946 to 1948, a detail that still surprises people. The last item to come off rationing was meat, in July 1954. An entire generation grew up never knowing what it meant to walk into a shop and simply buy what you wanted.
The Mass Observation diaries from this period, held at the University of Sussex Special Collections, are full of complaints about specific items. People grumbled about the monotony, about queuing, about the quality of dried egg. But the complaints existed within a framework of broad acceptance. The system was considered fair because it was visibly equal. The ration book did not ask how much you earned. A duke and a docker got the same allocation of cheese.
This was not accidental. The government faced a genuine choice between price controls, which would have let the market allocate scarce goods to whoever could pay the most, and per-capita rationing, which guaranteed equal access regardless of income. They chose rationing. The economists advising the government understood that the system needed to feel fair to function. If wealthy households had been seen stockpiling while ordinary families went without, the entire cooperative structure would have collapsed.
Mark Harrison's research on wartime economic psychology shows that governments can persuade populations to accept reduced consumption, but only through specific mechanisms.6 Appeals to patriotism work. Appeals to fairness work. Appeals to shared sacrifice work. Appeals to abstract economic theory do not. The Rapid Transition Alliance's analysis of WW2 consumption patterns confirms the speed at which behavioural change happened once the public accepted the underlying fairness of the system. People did not just tolerate rationing. Many of them found it clarifying: the anxiety of competitive consumption was temporarily removed.
The enforcement dimension mattered too. Black market prosecutions were widely publicised. When people were caught cheating the system, the punishment was visible, reinforcing the message that the rules applied to everyone. Sentences could be severe: fines, imprisonment, public shaming in the local press. The fairness compact was maintained not just by voluntary compliance but by demonstrated consequences for those who broke it. This is a point that often gets lost in nostalgic accounts of wartime solidarity. The solidarity was real, but it was also policed. The government understood that one visible cheater could do more damage to public compliance than a month of deprivation.
Ina Zweiniger-Bargielowska's history of the period documents how this fairness framework survived even the most severe deprivations.7 When bread was rationed after the war, at a point when people were exhausted and impatient for normality, the system held because the principle of equal sacrifice was already deeply embedded. People did not like it. But they accepted it as legitimate.
There is a telling detail in the Mass Observation data that often gets overlooked. When asked about rationing, people did not simply say they accepted it. Many expressed something closer to relief. The pre-war anxiety of keeping up appearances, of competitive consumption, of judging and being judged by what you could afford to put on the table, was temporarily suspended. Everyone had the same amount. The comparison game was, for a brief period, impossible to play. Several diarists described this as a kind of freedom. It was not freedom from want. It was freedom from the constant, grinding awareness of inequality.
The wartime experience established something that economists would spend decades trying to explain away: that human beings will accept enormous material deprivation, voluntarily and even with a degree of good grace, provided they believe the burden is shared equally. The sacrifice has to feel fair. Not optimal, not efficient, not economically rational. Fair.
The broken deal
On 14 September 2007, customers began queuing outside Northern Rock branches across the north-east of England. The images, broadcast on every news bulletin, looked like something from a different era. A bank run in modern Britain. It seemed irrational, hysterical, a failure of public understanding.
It was none of those things. Hyun Song Shin's analysis in the Journal of Economic Perspectives reframes the Northern Rock episode entirely.8 The UK's deposit insurance scheme at the time guaranteed 100 per cent of the first 2,000 pounds in any account, and 90 per cent of the next 33,000 pounds. A depositor with 35,000 pounds in Northern Rock therefore stood to lose 3,300 pounds if the bank failed. Queuing for hours to withdraw your money was not panic. It was arithmetic. The Bank of England's Governor subsequently confirmed that the depositors' behaviour was entirely rational given the legal framework.
But the Northern Rock story matters for this chapter not because of what the depositors did, but because of what happened next. The government extended a full guarantee on all Northern Rock deposits, stopping the run. Then, in September 2008, the financial system cracked open properly. Royal Bank of Scotland received 45.8 billion pounds in public funds, giving the government an 84 per cent stake. Lloyds Banking Group got 20.3 billion pounds for a 43 per cent stake. The total government commitment to stabilising the banking sector reached approximately 137 billion pounds, though the eventual net cost was substantially lower, around 23 billion.9
The public watched this happen. They watched the institutions that had caused the crisis receive the largest public subsidy in peacetime history. And then, in 2010, they were told that the country could not afford its current level of public spending and that ordinary people would need to accept cuts.
Mark Blyth's Austerity: The History of a Dangerous Idea traces the intellectual sleight of hand that made this possible.10 The debts were originally private. Banks had made bad bets and lost. But through the mechanism of the bailout, private debt was transformed into public debt, and public debt was then used to justify public spending cuts. Blyth traces the austerity argument back through two centuries of economic thought, from Locke and Hume through the Austrian school and German ordoliberalism, and finds the same pattern repeating: austerity is presented as pragmatic necessity when it is actually ideological preference. And it consistently delivers low growth with increased inequality.
The human cost was documented by Vickie Cooper and David Whyte in The Violence of Austerity.11 They compiled testimony from across the UK: disability benefit claimants found fit for work who later died, mental health services stripped to skeleton capacity, food bank use rising from tens of thousands to millions. A letter signed by 442 psychotherapists, counsellors and academics described what they were seeing as "anti-therapeutic practices" causing avoidable suffering and, in documented cases, avoidable deaths.
Research published in Social Forces in 2024 examined what happened to the families who bore the heaviest burden. Single mothers lost between 20 and 30 per cent of their household benefit income.12 The study tracked the consequences: increased financial worry, material hardship, deterioration in mental health, and measurable increases in adolescent socio-emotional difficulties. The children of austerity absorbed the stress of their parents' financial precarity in ways that will shape their own relationship with money for decades to come. Financial trauma transmits across generations. The children who watched their mothers counting coins at the supermarket checkout in 2013 are now entering the workforce with a set of money instincts that pre-date their first payslip.
The fairness rupture was not instant. In the immediate aftermath of 2008, public anger was directed at banks. But the narrative shifted. By 2010, the dominant framing, supported by most of the press, was that the country had been "living beyond its means." The crisis was recast from a banking failure to a public spending problem. The people who had caused the crisis paid bonuses. The people who had not caused it paid with their services, their benefits, and in some cases their health.
There is a useful thought experiment here. Imagine you are explaining the sequence of events to someone who knows nothing about British politics. You would say: the banks made catastrophic bets; the public bailed them out; the public was then told the country had no money; public services were cut; the banks paid bonuses; the people whose services were cut were told this was necessary because the country had been living beyond its means. Your listener would say: that cannot be what happened. But it is.
The greatest trick austerity pulled was convincing ordinary people that the crisis was their fault.
The language matters. The phrase "living beyond our means" performs a specific rhetorical function. It implies collective responsibility for what was, in reality, a failure of financial regulation and banking judgment. The "our" does an enormous amount of work in that sentence. It distributes blame evenly across a population that was overwhelmingly blameless. And it was repeated so often, by so many political and media voices, that it became the accepted explanation. The greatest trick austerity pulled was convincing ordinary people that the crisis was their fault.
If you wanted to design a policy sequence that would destroy public trust in the fairness of the economic system, you could not improve on what actually happened between 2007 and 2015.
Rationing held for fourteen years because everyone could see the burden was shared, while austerity collapsed that belief in a fraction of the time. In the next part: the three layers of trust that the post-2008 years wore down, and the furlough scheme that briefly made the old contract feel real again. Thanks for reading.
Next in this series: The three layers of trust, and what broke them. If this was useful, subscribing gets you the rest of the series as it lands.
Mass Observation (1941) A Savings Survey and wartime financial diaries. University of Sussex Special Collections. More than 50% approved rationing; only 14% dissatisfied.
Guth, W., Schmittberger, R. & Schwarze, B. (1982) An experimental analysis of ultimatum bargaining. Journal of Economic Behavior and Organization, 3(4), pp. 367-388.
Henrich, J. et al. (2006) Costly punishment across cultures. Science, 312(5781), pp. 1767-1770.
Fehr, E. & Schmidt, K.M. (1999) A theory of fairness, competition, and cooperation. Quarterly Journal of Economics, 114(3), pp. 817-868.
Akerlof, G. & Shiller, R.J. (2009) Animal Spirits. Princeton University Press.
Harrison, M. (1988) 'Resource Mobilization for World War II: The USA, UK, USSR, and Germany, 1938-1945', Economic History Review, 41(2).
Zweiniger-Bargielowska, I. (2000) Austerity in Britain. Oxford University Press.
Shin, H.S. (2009) Reflections on Northern Rock. Journal of Economic Perspectives, 23(1), pp. 101-119.
HM Treasury / NAO financial intervention data (2008-2010). RBS: £45.8 billion (84% stake); Lloyds: £20.3 billion (43% stake); total commitment approximately £137 billion; net cost approximately £23 billion after asset disposals.
Blyth, M. (2013) Austerity: The History of a Dangerous Idea. Oxford University Press.
Cooper, V. & Whyte, D. (eds) (2017) The Violence of Austerity. Pluto Press.
Social Forces (2024) 'Families of Austerity: Benefit Cutbacks and Family Stress in the UK'. Single mothers lost 20-30% of household benefit income under austerity-era reforms.