------------ EH.NET BOOK REVIEW --------------
Published by EH.NET (November 2007)

Randall E. Parker, _The Economics of the Great Depression: A 
Twenty-First Century Look Back at the Economics of the Interwar Era_. 
Cheltenham, UK: Edward Elgar, 2007. xi + 257 pp. $125 (cloth), ISBN: 
978-1-84542-127-4.

Reviewed by David C. Wheelock, Federal Reserve Bank of St. Louis.


_The Economics of the Great Depression_ is Randall Parker's second 
collection of interviews with leading economists about the Great 
Depression. Parker, a professor of economics at East Carolina 
University, published the first collection, _Reflections on the Great 
Depression_ (2002), after interviewing economists who began their 
professional careers or were students during the Depression. The 
interviews with Paul Samuelson, Milton Friedman, Moses Abramovitz, 
Charles Kindleberger, Anna Schwartz, and others explored how the 
Depression had influenced their life's work, although some, such as 
the interview with Anna Schwartz, also dug deeply into recent 
research on the causes of the Great Depression.

For this second collection, Parker interviews a group of younger 
economists: Most were born after World War II and all have written 
important papers or books about the economics of the Great 
Depression. Some are obvious choices -- Peter Temin, Ben Bernanke, 
and Allan Meltzer, for example, though all of the interviewees 
deserve to be included in the collection.

Parker himself has studied and written about the Depression and 
obviously was well prepared for each interview. Each interview 
explores the particular subject's expertise: The interviews with 
Barry Eichengreen and Michael Bordo focus on the international gold 
standard, for example, while those with James Butkiewicz and Allan 
Meltzer dig into the reasons behind the Federal Reserve's policy 
errors. But all of the interviews include the following key 
questions: What caused the Great Depression? What ended it? And, 
could it happen again? The answers reveal that leading scholars 
continue to have sharp differences of opinion about the cause or 
causes of the Great Depression.

As with the older literature, the sharpest disagreement in the recent 
literature on the Great Depression is about the role of monetary 
forces. Although the protagonists of the Monetarist-Keynesian debate 
of thirty years ago now largely agree that monetary and financial 
shocks were important, a new view has emerged based on so-called real 
business cycle theory that attributes the Great Depression to adverse 
productivity shocks. Among those interviewed, Lee Ohanian argues the 
strongest for the real business cycle view, though Robert Lucas 
expresses sympathy and others applauded the use of modern theoretical 
tools to understand the Depression. Most of the interviewees are not 
convinced that the real business cycle approach yields much insight 
about why the Depression happened, but several agree with Cole and 
Ohanian (2004) that the National Recovery Act and certain other New 
Deal programs slowed economic recovery.

Other notable differences of opinion among the interviewees concerns 
the extent to which monetary contraction would have occurred in the 
absence of the gold standard, whether the gold standard prevented the 
Federal Reserve from adopting an expansionary monetary policy, and 
the impact of deflation. I was struck particularly by the strong 
disagreement about whether deflation was anticipated or not and 
whether deflation was a cause or merely a symptom of the decline in 
economic activity. Nearly all of the subjects agree, however, that an 
important lesson of the Great Depression is that price stability 
should be a paramount objective of monetary policy. Furthermore, the 
interviewees also agree that another Great Depression is unlikely, 
though some are more pessimistic than others about the prospects for 
serious macroeconomic calamities in the future.

In his interviews, Parker makes little attempt to hide his personal 
views or refrain from asking leading questions. "What a rotten 
system," Parker opines about the gold standard in his interview with 
James Hamilton, for example. And "Do you not see the evils of 
deflation?" he asks Allan Meltzer. While I am not bothered by these 
types of statements and questions, I do find somewhat distracting the 
inclusion of notes indicating that the interviewer and interviewee 
were "chuckling," "laughing," or otherwise drifting away. The 
interviews also frequently refer to charts or data that appear in 
other sources; I wish that these had been reproduced in the book.

One of the best parts of the book is Parker's overview of the events 
and literature on the economics of the Great Depression, which is a 
revised and updated version of the overview written for his first 
book. A reader has to be fairly knowledgeable about the underlying 
research of the interviewee to get a lot out of these interviews. 
However, the overview chapter is one of the best surveys of the 
literature on the causes of the Great Depression that I have seen and 
makes the book worth recommending even to those who might not gain 
from reading all of the interviews.

References:

Harold L. Cole and Lee E. Ohanian, "New Deal Policies and the 
Persistence of the Great Depression: A General Equilibrium Analysis," 
_Journal of Political Economy_, Volume 112, Number 4, August 2004.

Randall E. Parker, _Reflections on the Great Depression_ (Edward Elgar, 2002).


David C. Wheelock is an assistant vice president and economist at the 
Federal Reserve Bank of St. Louis. His recent publications include 
"Why Did Income Growth Vary across States during the Great 
Depression?" (with Thomas A. Garrett), _Journal of Economic History_ 
66 (June 2006). [log in to unmask]

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