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H-NET BOOK REVIEW 
Published by [log in to unmask] (January, 1998) 
 
Elmus Wicker.  _The Banking Panics of the Great Depression_. 
Studies in Monetary and Financial History.  New York:  Cambridge 
University Press, 1996.  xviii + 174 pp.  Bibliography and index. 
$39.95 (cloth), ISBN 0-521-56261-9. 
 
Reviewed for H-USA by Robert Whaples <[log in to unmask]>, Wake Forest 
University 
 
             Banking and the Great Depression: 
            New Findings but Still No Consensus 
 
The Great Depression is the enduring puzzle of American economic 
history.  This event, which ushered in the New Deal, seems to have 
permanently altered the role of the government in the economy and 
the economic ideology of the electorate.  Because the workings of 
the economy are so complex and because the Great Depression was such 
an extraordinary and unique event, it has defied easy analysis. 
There is no consensus among American economic historians about the 
causes of the Great Depression. 
 
One leading interpretation is found in Milton Friedman and Anna 
Schwartz, _The Great Contraction_ (Princeton, 1965).  They conclude 
that "monetary forces were the primary cause of the Great 
Depression."  They argue that a series of banking panics from late 
1930 to early 1933 caused the money supply to shrink at a rapid, 
unprecedented rate which caused the economy to collapse.  They place 
considerable blame on the Federal Reserve (the central bank of the 
United States) and contend that "throughout the contractionary 
period of the Great Depression, the Federal Reserve had ample powers 
to cut short the process of monetary deflation and banking collapse. 
Proper action would have eased the severity of the contraction and 
very likely would have brought it to an end at a much earlier date" 
(p. xi).  Another leading interpretation rejects much of this line 
of reasoning and argues that the banking failures were a symptom, 
not a cause, of the depression.  The most notable proponent of this 
argument, Peter Temin (_Did Monetary Forces Cause the Great 
Depression?_, New York, 1976), maintains that "a fall in autonomous 
spending, particularly investment, is the primary explanation for 
the onset of the Great Depression" (p. 137). 
 
Recent work on the Great Depression has turned away from looking, as 
Friedman and Schwartz did, at aggregate national statistics.  In 
_The Banking Panics of the Great Depression_, Elmus Wicker (Emeritus 
Professor of Economics, Indiana University) shows the power of this 
more microeconomic approach.  After briefly surveying the banking 
situation in the United States from 1921 to 1933, Wicker builds a 
careful historical narrative of each of the five banking panics of 
the Great Depression.  He makes a detailed analysis of the 
geographical spread of each panic, using the Federal Reserve 
District-level data for much of his empirical work, but also turning 
to newspapers to identify the cities in which banks failed, the 
day-to-day events in each panic, and the names of failing banks. 
Unfortunately, neither the Federal Reserve data nor the newspaper 
accounts are as informative as one would like.  "Because newspaper 
editors were conscious of their responsibilities not to exacerbate 
banking disturbances," Wicker writes, "their description of what was 
happening was held to a not very informative minimum" (p. xvii). 
Wicker does all he can to reconstruct events, but concludes that 
"some significant details" are still missing and will never be 
found. 
 
Wicker presents a substantial amount of information in fifty tables 
and figures.  His analysis of the data is always careful, and his 
interpretations are cautious.  The result is a number of important 
findings.  First, Wicker identifies a new banking panic (June 1932, 
centered in Chicago) that earlier scholars had overlooked.  Second, 
he shows that the first four of the panics were not nationwide in 
scope, but concentrated in one or a few areas.  Third, he finds that 
the banking panics of the Great Depression were unlike those from 
the period before the Federal Reserve (the Fed) was established in 
1914.  Earlier banking panics had started in New York City and 
spread to the rest of the country. During the Depression, panics 
began in a number of locations but never spread to Wall Street, 
where interests rates and the stock market barely reacted.  Next, 
Wicker shows that most of the banking panics of the Depression do 
not fit the common descriptions of indiscriminate runs on banks by 
depositors whose confidence in the entire banking system has been 
shattered.  Runs were generally directed against particular banks 
that were known to be weak.  Large, secure banks had little to worry 
about.  In addition, Wicker shows how idiosyncratic the final, 
devastating run (February and March, 1933) was.  He argues that this 
panic was actually a panic among politicians (especially state 
governors and legislators who shut down banks, declaring a "bank 
holiday") rather than among depositors. 
 
In 1994, I surveyed members of the Economic History Association 
asking them to "generally agree," "agree--but with provisos," or 
"generally disagree" with forty propositions concerning American 
economic history (see Robert Whaples, "Where Is There Consensus 
among American Economic Historians? The Results of a Survey on 
Forty Propositions," _Journal of Economic History_, Vol. 55, March 
1995).  The answers showed considerable consensus on a wide variety 
of topics, including the costs of the Navigation Acts to colonial 
America, the profitability of slavery, and the role of the railroads 
in nineteenth century American economic growth. However, the survey 
demonstrated widespread disagreement about the causes of the Great 
Depression.  Among economic historians in economics departments, 48 
percent agreed with Friedman and Schwartz's contention that monetary 
forces were the primary cause of the Great Depression.  The other 
half (actually 52 percent) disagreed.  Slightly more (61 percent) 
agreed with Temin that a fall in spending is the primary explanation 
for the onset of the depression.  Yet, quite a few (39 percent) 
generally disagreed with this theory.  Finally, 32 percent generally 
agreed that the Fed had ample power to cut short the banking 
collapses and terminate the depression at an early date.  The 
largest group (43 percent), "agreed-but with provisos"  with this 
proposition, while 25 percent generally disagreed with it.  With the 
publication of Wicker's book, how will these numbers change?  How 
will _The Banking Panics of the Great Depression_ alter the 
collective wisdom of the profession about the causes and nature of 
the Great Depression? 
 
The answer is that Wicker's book won't tip the balance much one way 
or another.  For example, Wicker concludes that the first bank panic 
"generated by the failure of Caldwell and Company was an autonomous 
disturbance generated by questionable managerial and financial 
shenanigans"  rather than being caused by the recession.  Yet he 
also concludes that, "econometric evidence gives conflicting 
interpretations of the causal role of bank failures," so "the jury 
is still out" (p. 160).  Likewise, Wicker will not change too many 
minds about the ability of the Fed to have terminated the downturn 
before it became the Great Depression. He thinks the Fed could and 
should have done a lot more, but is not as sanguine as many. 
 
However, Wicker may change some minds about the culpability of the 
Fed in causing the Depression.  Friedman and Schwartz argued that 
the Fed was not merely guilty of inaction (i.e. allowing banks to 
fail by doing little to stop the bank panics) but that the Fed's 
perverse actions helped cause the Great Depression--when it 
increased its rate of interest to banks at a critical juncture in 
the banking panic of October 1931.  Wicker deflates this argument by 
showing that this banking panic was well underway and nearing an end 
before the Fed's actions.  Moreover, Wicker praises the Fed for 
keeping the panics from spreading to New York and for providing an 
elastic currency supply.  He portrays a Fed that was puzzled why the 
provision of an elastic supply of currency alone was not sufficient 
to halt banking panics and which never understood how to restore 
depositor confidence in the banking system and undo the hoarding of 
money outside of banks.  His Fed is perplexed and timid, rather than 
bumbling.  Yet, like Friedman and Schwartz, he damns the Fed for 
"abdicating" its responsibility for maintaining the stability of 
this U.S. banking system. The Fed did not exercise leadership and 
did not take seriously its responsibility as a lender of last resort 
to banks on the brink of failure; instead it allowed this important 
function to fall into (or through) less capable hands. 
 
Wicker's book is the product of decades of rumination on the causes 
of the Great Depression and the nature of American banking during 
this era.  It is a valuable addition. 
 
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