MY PARTICULAR RESEARCH SPECIALTY is macroeconomics, not economic history. Nevertheless, throughout my academic career, I have returned many times to the study of the vertiginous economic decline of the 1930s, now known as the Great Depression. I guess I am a Great Depression buff, the way some people are Civil War buffs. I don’t know why there aren’t more Depression buffs. The Depression was an incredibly dramatic episode—an era of stock market crashes, bread lines, bank runs, and wild currency speculation, with the storm clouds of war gathering ominously in the background all the while. Fascinating, and often tragic, characters abound during this period, from hapless policymakers trying to make sense of events for which their experience had not prepared them to ordinary people coping heroically with the effects of the economic catastrophe. For my money, few periods are so replete with human interest.
I have enjoyed studying the Great Depression because it is a fascinating event at a pivotal time in modern history. How convenient for me, then, professionally speaking, that there is also so much to learn from the Depression about the workings of the economy. (Those who doubt that there is much connection between the economy of the 1930s and the supercharged, information-age economy of the twenty-first century are invited to look at the current economic headlines—about high unemployment, failing banks, volatile financial markets, currency crises, and even deflation. The issues raised by the Depression, and its lessons, are still relevant today.)
Fundamentally, the Depression is informative about the economy for two main reasons: it was a (very) big event, and it affected most of the world’s countries. Because the Depression was so big and so deep, the basic facts to be explained stand out in sharp relief. Indeed, the sheer magnitude of interwar economic fluctuations is sufficient to render implausible (for the Depression, at least) some popular explanations of the business cycle, such as the hypothesis that recessions are the result of temporary slowdowns in the march of technological progress. And because the Depression’s impact was felt by nearly all the countries of the world, but not to an equal degree, the period also provides a marvelous laboratory for studying the link between economic policies and institutions on the one hand and economic performance on the other. A striking example of what can be learned by international comparisons is the fact, emphasized by Barry Eichengreen and Jeffrey Sachs among others, that countries that abandoned the gold standard at an early stage recovered more quickly from the Depression. This robust empirical finding has proven to be the key to a greatly improved understanding of