The Great Depression: An International Disaster of Perverse Economic Policies
Adamson, Michael R., Freeman
The Great Depression: An International Disaster of Perverse Economic Policies by Thomas E. Hall and J. David Ferguson
University of Michigan Press 1998 . 216 pages $42.50 cloth; $19.95 paperback
Thomas Hall and J. David Ferguson state two purposes in writing this book. Their first is to apply macroeconomic theory to an actual event, "the greatest macroeconomic disaster in U.S. history." Their second aim is historical. They seek to tell the story of how powerful officials in several countries "committed an incredible sequence of policy errors that generated a cataclysmic event reaching around the entire globe." The authors succeed admirably in their first objective, but do less well in their second. As economists relying on macroeconomics to explain the decision-making processes that culminated in and sustained the Depression, they demonstrate the limits of macroeconomics alone in analyzing and explaining historical events.
Nonetheless, The Great Depression is a valuable book. It is well written and the authors carefully explain many obscure practices of the interwar financial world, such as the Federal Reserve's real bills doctrine. Moreover, they ably marshal the secondary literature in economics to answer such questions as: why the depression was so severe, why it lasted so long, and why it was a global phenomenon.
Their answers to those questions reflect a monetarist consensus that synthesizes the work of Milton Friedman and Anna Schwartz, which focuses on the domestic sources of the depression found in Fed policy, and that of Peter Temin and Barry Eichengreen, whose work indicts the pursuit of the interwar gold standard for making the depression an international phenomenon. Although the authors do not include the analysis of Austrian economists, they rightly point to the role of the Hoover and Roosevelt administrations in perpetuating the Depression. Indeed, the authors reach the conclusion of Murray Rothbard and other Austrians: government intervention made conditions worse.
In applying macroeconomic criteria as the test of policy outcomes, the authors also applaud several federal policies that constituted unprecedented economic intervention. Accepting the idea that a central role of the government in monetary policy is essential, they approve of the banking and financial laws of the 1930s that established federal deposit insurance, and strengthened the power of the Fed. Similarly, given Fed failures, they view the Reconstruction Finance Corporation as a useful alternative lending institution. They also endorse the questionable idea that heavy federal defense spending ended the Depression. …