Essays on the Great Depression [Paperback]

Ben S. Bernanke (Author)

Book Description

Publication Date: January 5, 2004

Few periods in history compare to the Great Depression. Stock market crashes, bread lines, bank runs, and wild currency speculation were worldwide phenomena--all occurring with war looming in the background. This period has provided economists with a marvelous laboratory for studying the links between economic policies and institutions and economic performance. Here, Ben Bernanke has gathered together his essays on why the Great Depression was so devastating.

This broad view shows us that while the Great Depression was an unparalleled disaster, some economies pulled up faster than others, and some made an opportunity out of it. By comparing and contrasting the economic strategies and statistics of the world's nations as they struggled to survive economically, the fundamental lessons of macroeconomics stand out in bold relief against a background of immense human suffering. The essays in this volume present a uniquely coherent view of the economic causes and worldwide propagation of the depression.

Editorial Reviews

Review

Bernanke is the master of applied microeconomics. Not only is he technically proficient but his ability to place his results in a larger macroeconomic context is unparalleled. (Mark Toma Financial History Review )

[H]aving devoted much of his career to studying the causes of the Great Depression, Bernanke was the academic expert on how to prevent financial crises from spinning out of control and threatening the general economy. One line from his Essays on the Great Depression sounds especially prescient today: 'To the extent that bank panics interfere with normal flows of credit, they may affect the performance of the real economy.' (Roger Lowenstein New York Times Magazine )

Mr. Bernanke certainly knows the importance of well-functioning markets. In Essays on the Great Depression he wrote persuasively that runs on the banks and extensive defaults on loans reduced the efficiency of the financial sector, prevented it from doing its normal job in allocating resources, and contributed to the Depression severity. The Depression-era problems he studied are mirrored by similar issues today, and they need urgent attention. (Robert J. Shiller New York Times )

Fortunately, before he became entangled in these restrictions [Bernanke] did edit and help write a book, Essays on the Great Depression. . . . Mr. Bernanke's motive was that understanding the depression would provide important clues to what can go wrong with capitalist market systems. (Samuel Brittan Financial Times )

The financial crisis has made Federal Reserve Chairman Ben Bernanke's book Essays on the Great Depression a hot seller. . . . Bernanke, a former Princeton University economist, is considered the pre-eminent living scholar of the Great Depression. He is practicing today what he preached in his book: Flood the system with money to avoid a depression. (Dennis Cauchon USA Today )

When Ben Bernanke arrived at the Federal Reserve in February 2006 as the new chairman of the central bank, he had a copy of his 2001 book, Inflation Targeting: Lessons from the International Experience, tucked under his arm. Not literally, of course. He was hoping to convince his colleagues on the Federal Open Market Committee of the value of an explicit inflation target. Little did he know that less than two years later he'd be shelving Inflation Targeting and turning to Essays on the Great Depression, another of his books, for guidance. In his book of essays, Bernanke calls the Great Depression the 'Holy Grail of macroeconomics.' He writes that 'the experience of the 1930s continues to influence macroeconomists' beliefs, policy recommendations, and research agendas.' (Caroline Baum Bloomberg.com )

With some observers saying that the ongoing financial crisis could be the worst since the Great Depression, the greatest living expert on that period is getting the chance to apply its economic lessons. . . . In Essays on the Great Depression . . . [Bernanke] notes that understanding that period is the 'holy grail of macroeconomics.' (Spencer Jakab Dow Jones Newswires )

From the Inside Flap

"This influential body of work is a significant contribution to our understanding the depth and persistence of the Great Depression.... This book will become a standard reference in the field of business cycle research."--Randall Kroszner, University of Chicago

"Bernanke's work has had a powerful impact on the economics profession, alerting macroeconomists to the advantages of historical analysis, and a number of important figures (James Hamilton, Steve Cecchetti, for example), inspired by his work, have followed him into the field. The nine essays form a remarkably coherent whole."--Barry Eichengreen, University of California, Berkeley, and author of Globalizing Capital: A History of the International Monetary System

"Collecting these essays together will provide a single source for students to find Bernanke's substantial contributions.... His papers demonstrate conclusively that the international view of the great depression has impressive explanatory power."--Peter Temin, Massachusetts Institute of Technology --This text refers to the Hardcover edition.

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Product Details

• Paperback: 320 pages
• Publisher: Princeton University Press (January 5, 2004)
• Language: English
• ISBN-10: 0691118205
• ISBN-13: 978-0691118208
• Product Dimensions: 6 x 0.8 x 9 inches
• Shipping Weight: 14.4 ounces (View shipping rates and policies)
• Average Customer Review: 3.5 out of 5 stars  See all reviews (22 customer reviews)
• Amazon Best Sellers Rank: #430,309 in Books (See Top 100 in Books)

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Most Helpful Customer Reviews

79 of 85 people found the following review helpful

5.0 out of 5 stars Collection of academic papers about the Great Depression February 22, 2006

By Jerry H. Tempelman

Format:Paperback

This is a collection of nine academic research papers written by Ben S. Bernanke during his two decades long academic career at Stanford University and at Princeton, where he ended up chairing the economics department. In these papers Bernanke, now chairman of the Federal Reserve System, along with several coauthors, examines the Great Depression, understanding of which he calls "the Holy Grail of macroeconomics" (p. 5).

Bernanke distinguishes financial theories and labor-market theories to explain what caused and prolonged the Great Depression. Financial explanations include monetary shocks, such as the collapse of the money supply that turned a run-of-the-mill recession into a once-in-a-lifetime depression. The collapse of the money supply was in turn caused by a clinging to the gold standard. Nonmonetary factors include banking panics, business failures, and a choking off of normal flows of credit (nonindexation of financial contracts, debt deflation).

Labor-market theories center around the phenomenon of so-called sticky wages: why did nominal wages fail to decline commensurately with prices (deflation) in the face of massive unemployment? This is clearly a factor behind the persistent unemployment during the Great Depression, but the reason has as of yet not been fully explained.

Bernanke's analysis is representative of the so-called New Keynesian view of macroeconomics, which frames different theories as supplementary rather than competing. The book contains one overview paper, while the remaining eight papers cover some of the component theories. Although the papers were written separately, as a collection they fit.

For the most part the papers are empirical investigations. Their technical nature means that the book may be a tough ride unless you are a professional macroeconomist. But it is instructive to see how Bernanke's understanding of the Great Depression has informed his economic views, as expressed recently in his famous November 2002 anti-deflation speech and in the fact that Bernanke, like his predecessor Alan Greenspan, does not favor targeting asset bubbles.

83 of 99 people found the following review helpful

5.0 out of 5 stars Rigorous and Authoritative. The Best Book on Great Depression Economics March 22, 2006

By T. Carlsen

Format:Paperback|Amazon Verified Purchase

Bernanke rigorously explains the economics of the Great Depression. A massive monetary contraction (reduction in the money supply) was the cause of the Great Depression, in large part due to the mechanisms of the flawed version of the gold standard that was created following World War One. The massive banking collapse (due to weak regulation) further worsened the disaster as lending contracted sharply and the money supply severely contracted. Those were the two main causes.

Sticky wages and other factors contributed to the slow recovery. To a lesser extent, the Smoot-Hawley tarriff, which very sharply raised tariffs extremely high, contributed to the cause.

Bernanke shows decisively that the gold standard as it was designed in the 1920's was a disaster. The countries that abandoned the gold standard the soonest, such as Britain, were the ones that recovered the quickest. The countries that clung to the gold standard the longest, such as France, were the ones that suffered the depression the longest. The countries that were not on the gold standard at all - perhaps using the silver standard - avoided the Great Depression in the first place!

Due to the gold standard and other misguided judgements, the Federal Reserve constricted the money supply again and again. The gold standard caused a run on the gold supply, followed by further Fed tightening of the money supply to defend the currency, leading to widespread bank panics, which constricted the money supply further due to the sharp drop in bank loans and the loss of consumer confidence in the financial services industry, which was hardly regulated.

The economic crisis was made worse by the massive banking collapse. Thousands of undercapitalized banks went insolvent, and thousands of people lost their savings. Bank panics swept across the country. Other banks refused to make new loans for fear of loan default. The banking crisis resulted in a further contraction of the money supply. The banking industry completely collapsed at the end of Hoover's presidency.

Sticky wages also contributed to the depression, although not as much as Keynesians think, according to Bernanke. Hoover and FDR may have made this worse by trying to maintain and increase the spending power of workers, although the counter argument is that this increased worker spending power increased spending and demand. The book examines many other factors too numerous to list in this review. This is the best book on the economics of the Great Depression.

Once taking office in 1933, Franklin Roosevelt quickly removed America from the disastrous gold standard (which previous administrations would never have done), which stopped the strangling of the economy by the gold standard, and then FDR saved the collapsed banking industry, which stopped the strangling of the economy by the banking collapse. Recovery followed, the statistics clearly show. According to Bernanke, industrial output in America grew 5% PER QUARTER from 1933-37. Real wages grew substantially. Productivity grew substantially. Unemployment dropped.

The contraction was stopped in 1933 and economic growth began, so technically the depression ended in 1933. GDP grew over 50% in four years. This period of high growth was interrupted by a severe recession in 1937-38, which was followed by more high growth. According to Bernanke, "Quarterly growth rates for manufacturing employment, hours, and input in 1938-40 were 1.8, 2.8, and 4.9 percent, respectively." Despite the recovery, Bernanke says that the Great Depression still lasted several years because the economy took awhile to get back to where it was before the Great Depression.

I used a pencil to highlight the conclusions and summary points in this book because much of the information is academic and loaded with technical analysis. A massive amount of rigorous economic data is included, so only an economist will understand everything, but anyone can understand the conclusions. Bernanke inserts summary sentences so anyone can understand the conclusions if you wade through the technical analysis.

Highest recommendation.

9 of 9 people found the following review helpful

5.0 out of 5 stars Modern Perspective of the Great Depression March 19, 2010

By Rufus Burgess

Format:Paperback|Amazon Verified Purchase

Ben Bernanke's Essays on the Great Depression is a collection of 9 essays written in the 80's and 90's about the financial and labor markets during the 1930's. The essays are essentially a synthesis of prior work with greater mathematical rigor. For anyone wanting to know what caused the Great Depression, without reading an entire book, please read the first essay "The Macroeconomics of the Great Depression: A Comparative Approach." [...]

Bernanke's views regarding the Great Depression largely avoid the pre-80's debate over the 'money' hypothesis and 'spending' hypothesis. These views, argued by Friedman and Temin, used a quantitative analysis of the domestic markets and government policy. Instead, Bernanke assumes, and strongly supports, the view of Barry Eichengreen and Jeffery Sachs (1986) that the Gold Standard was the cause of the Great Depression. A sharp drop in the supply of money created a sharp drop in aggregate demand. Other factors, like sticky wages and prices, contributed to the Great Depression but were not the main factors. It was not until countries got off the Gold Standard that they were able to grow.

It is likely that the Federal Reserve or the Bank of England could have prevented a widespread depression between 1929-1930. However, after that period it remains doubtful whether either country could quell the Depression while maintaining the Gold Standard. It is important to note that the Great Depression was not caused by the USA alone (as commonly held before the 1980's). Bernanke is unable to explain what caused the Depression but can prove that it was not only the US (by inference the cause was international).

Due to the limited amount of statistics about the Great Depression Bernanke is forced to make MANY assumptions when building econometric models. At points his methodology becomes somewhat questionable (to his credit he often mentions this to the reader). Nevertheless, when Bernanke reaches his conclusions he is quite confident of the results (which is somewhat troubling...).

Overall: a great analysis of the Great Depression. In the academic circles, to my knowledge, Bernanke's conclusions remain the standard. (For some reason Macroeconomic textbooks seem to ignore both Beranke and Eichengreen's work -- I don't know why).