====================== HES POSTING =====================
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.
Copyright (c) 1998 by EH.NET and H-Net. All rights reserved. This work
may be copied for non-profit educational uses if proper credit is given to
the author and the list. For other permission, please contact the EH.NET
Administrator. ([log in to unmask], Telephone: 513-529-2850; Fax:
513-529-6992)
============ FOOTER TO HES POSTING ============
For information, send the message "info HES" to [log in to unmask]
|