------------ 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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