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Here are three more posting from Economic History Research list on the Great Depression. These follow the recent single post on the same subject. Any thoughts, comments, or replies will be posted to this list, and I will forward them on to EH.R. Floyd B, co-editor, H-W-Civ. +++++++++++++++++++++++++++++++++++++++++++++++++  Subj: EH.R: FORUM: The Great Depression Date: Mon, 24 Feb 1997 13:48:42 -0600 From: Peter Temin <ptemin@MIT.EDU> ================= EH.RES POSTING ================= Here are some capsule views: 1. Lessons from the Great Depression a. The Depression was caused by a demand shock, more accurately a series of demand shocks. b. The gold standard is harmful when there is need for adjustments to large shocks. Rigidity may be helpful in response to small shocks, but it is dangerous in the presence of large shocks. c. Prosperity generally provides a consensus for markets; adversity, for government regulation. 2. Causes of the Great Depression a. The Great Depression was caused by the adherence of major countries to the gold standard long after the wisdom and usefulness of this policy had ended. b. There are many questions to be answered in the context of this overall view. 3. The Depression as a turning point a. This was the topic of a NBER conference, to which all readers should be referred. b. There was a turning point in many areas of the domestic economy: regulation, banking, agriculture. c. Conditions in the international economy generally are more cyclical. The war and inter-war period, including the Depression, appear as interruptions to capital flows, tariff levels, etc., than changes inititiated in the Depression. Peter Temin Massachusetts Institute of Technology ============ FOOTER TO EH.RES POSTING ============  Date: Mon, 24 Feb 1997 13:48:42 -0600 From: Brad De Long <email@example.com> Subj: EH.R: FORUM: The Great Depression ================= EH.RES POSTING ================= Let me focus on the question "Do we now understand the 'causes' of the Great Depression, or are there still important and unresolved questions about why it occurred?" And let me answer it: "Yes and no." We have a nice and well-documented hierarchy of causes of the Great Depression. At the deepest level, we have Kindleberger's explanation: strong poicy action to deal with a major international financial crisis is extremely unlikely in the absence of a hegemon--a dominant economic power that has an enormous stake in resolving the crisis, the power to materially affect the global situation, and sufficient influence that others will condition their behavior to respond to its actions or its wishes. Had the crisis of 1929-1932 happened a quarter century earlier, Britain would have been the "hegemon"--would have taken steps to counteract the worldwide deflation, would have been joined by other countries, and the Depression would probably have been averted. If the 1929-1932 crisis had happened a quarter century later, America would have been the "hegemon". But in 1929-32 there was no single dominant power, so action to stop ongoing deflation required international cooperation--and committees rarely are sources of decisive action. At a somewhat shallower level, we have Eichengreen's explanation: for the first few years of the Great Depression countries engaged in the gold standard as usual because they could not find the nerve to undertake or the doctrines to support anything else, and the gold-standard-as-usual policies were disastrously deflationary. (The reason that they could not find the nerve to undertake anything else? In large part because of the absence of a hegemon to spark general reflation.) At a still shallower level, we have Friedman and Schwartz: the money stock collapsed (because the money multiplier collapsed under pressure from banking crises produced by an initial recession). (And the workings of the gold standard explain why the Federal Reserve did not take many steps while the money stock collapsed.) And at the most immediate level, we have the downward consumption shock of Peter Temin that triggered the collapse of the money multiplier--a consumption shock that people now want to trace to the uncertainty generated by the stock market crash (Romer) and to the Federal Reserve's monetary tightening in 1927-1928 (Hamilton and Miron). I think these four levels of explanation are all consistent with each other, and provide as complete a causal account as we could ever wish. However, I think that there are still two things we do not understand very well: the persistence of the Depression (it lasted a long, long time), and the uniqueness of the Depression--an economy as vulnerable as the 1929 one appeared to be should have experienced a larger number of near-Great Depressions than we now think that it has. Brad De Long University of California at Berkeley ============ FOOTER TO EH.RES POSTING ============  Date: Mon, 24 Feb 1997 13:48:42 -0600 From: "Wallis, John" <firstname.lastname@example.org> Subj: EH.R: FORUM: The Great Depression ================= EH.RES POSTING ================= It is important to remember the difference between the Great Depression and the New Deal. There are some central questions about the interrelationship between economic and political events in the 1930s that are fundamentally unresolved. Did the Great Depression cause the New Deal? Did the New Deal prolong the Great Depression? Could the Depression have been avoided if a different set of economic policies been followed? I don't know the answers to these questions. But they are critical, as the issue of endogeneity lies at the heart of many of the debates over what happened. For example, the "elusive consensus" that the Depression was caused by monetary forces has been built on a better understanding of the international character of the depression. I remember how striking that was at the conference organized by Barry Eichengreen and Tim Hatton. When you lined up the experience of lots of different countries in the 1930s some common patterns emerged. But I have been less than persuaded that, in fact, international factors, particularly monetary factors, were the cause of the Depression. It has to do with simultaneity. Monetary policy in the United States was a response to a mix of internal and external forces. What is causing what? Are the policies or the economic realities driving the changes? For smaller countries heavily dependent on agricultural exports, the break down of the international markets was probably the primary cause of their "great depressions." But then we are left with explaining why the depression occurred in Europe and the US that led to the breakdown of the international system. In other words, I think we have a better understanding of what went on in the 1920s and 1930s than we did before, but I still don't think we understand the "causes" of the depression. It seems to me to be crystal clear that the New Deal was a critical turning point in the economic and political history of the United States, but that may not have been the case in other countries. World War I may have been a more cathartic experience in Europe for example. I'm sure that you are aware that there is a NBER volume coming out on precisely this question. Here, again, the issue of endogeniety is of central importance. The New Deal resulted in two permanent changes. One was the ascendance of the Democrats as the majority party, the other was the shift in fiscal structure to a more dominant national government within a more integrated federal system. While the great contraction had something to do with the election of FDR in 1932, it is far from clear that it was the depression that resulted in FDR's victory in 1936. The depression wasn't over and the end wasn't in sight. The 1936 election confirmed the Democrats as the majority party and was tangible approval of the New Deal policies. How much the depression shaped the New Deal policies (e.g. were the policies the reactions to short run problems or long run problems?) and how much the New Deal policies shaped the depression (e.g. did New Deal regulation erode business confidence and prevent a resurgence of investment?) are questions that are still wide open. John Wallis University of Maryland ============ FOOTER TO EH.RES POSTING ============