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EH.NET BOOK REVIEW 
 
Published by EH.NET (February 1998) 
 
 
Bernard C. Beaudreau, _Mass Production, the Stock Market Crash, and the 
Great Depression: The Macroeconomics of Electrification_. Westport: 
Greenwood Press, 1996.  xx + 182 pp.  $59.95 (cloth), ISBN: 031329920X. 
 
 
Reviewed for EH.NET by William J. Hausman, Department of Economics, College 
of William and Mary.  <[log in to unmask]> 
 
 
     Beaudreau asserts boldly on the first page of his book that his 
purpose is to "provide a definitive account of the Great Depression and the 
events leading up to this cataclysmic event" (p. xv). At least he didn't 
claim to have written "the" definitive account. In fact, this is a highly 
idiosyncratic treatment that explores a number of events of the 'teens, 
20s, and 30s. There is much that is outrageous, along with occasional 
insights that warrant further study. The fundamental argument is that 
productivity-enhancing structural changes in industry in the 1920s set the 
stage for the events that were to follow. The treatment of the period thus 
fits within the basic approach economic historians such as Michael 
Bernstein (_The Great Depression: Delayed Recovery and Economic Change, 
1929-1939_, Cambridge University Press, 1987) and, more recently, Rick 
Szostak (_Technological Innovation and the Great Depression_, Westview 
Press, 1995) have taken. 
 
     The chain of logic is clearly defined but long. The electrification of 
industry ("the most important process innovation in this century"), because 
it set the process in motion, is actually the villain of the piece. The 
electrification of the assembly line in the 1920s (a process led by the 
Ford Motor Company) substantially raised productivity and led to an era of 
mass production. This brought conditions of "oversupply," initially hidden 
by labor hoarding. Eventually, aggregate income failed to keep pace with 
productivity, not because profits rose substantially, but because wages 
failed to rise. By 1928 Senator Reed Smoot, with the support of Hoover, 
proposed restricting access to the U.S. market by raising tariffs. The 
prospect of passage of the tariff bill in 1928 set off the speculative 
stock market boom. The failure of the bill in the Senate the following year 
precipitated the stock market crash. Planned investment then was cut 
drastically, setting off the decline in income and the Great Depression. 
The National Industrial Recovery Act was the only policy response that had 
a chance of reversing the process, but this experiment in cooperative 
behavior aided by government was cut short by the Supreme Court. This is 
all laid out in the introduction. Twelve chapters, each of them short, then 
attempt to either flesh out the bare bones of the logic, or offer asides on 
some aspect of the historical process. 
 
     Because the chain of logic is long, it can be attacked at numerous 
points. Take, for example, the monocausal view of the course of the stock 
market. In two chapters and an appendix, Beaudreau links the prospects of 
the tariff bill as reported in the press to stock market activity. A 
correlation can be established, but the causality is obscure, relying 
heavily on an indirect link to planned business investment. One important 
aspect of the event that is not mentioned is the fact that industrial 
stocks actually rose much less than public utility stocks, especially 
stocks of public utility holding companies, a sector not much affected by 
the prospective tariff. In the end the correlation is not sufficient to 
prove the point. 
 
     The book contains some interesting chapters. In one, a game-theoretic 
model is used to show how an economy may get stuck in a low-growth 
equilibrium in the presence of a productivity-enhancing technological 
shock. It carries some heavy assumptions, the critical one being that firms 
will not raise wages in response to the shock (without some third-party 
intervention). It is conceivable that such a process had a role to play in 
bringing on the depression. 
 
     This book is not a definitive account of the events surrounding the 
Great Depression. The basic approach of exploring structural changes as the 
root cause of the depression is, however, a worthy endeavor. Perhaps if the 
author had been more modest in his claims, my reaction would not have been 
as critical. 
 
William J. Hausman 
Department of Economics 
College of William and Mary 
 
 
Will Hausman is the author of "Long-term Trends in Energy Prices," in 
Julian L. Simon, ed., _The State of Humanity_, Oxford: Blackwell 
Publishers, 1995, and other papers on the history of the U.S. electric 
utility industry. 
 
 
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