Essays on the Great Depression (Paperback)

~ Ben S. Bernanke (Author)

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. -- Review

Not only is [Bernanke] technically proficient but his ability to place his results in a larger macroeconomic context is unparalleled. -- Mark Toma, Financial History Review

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 )

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 )

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 )

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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: 9 x 6 x 0.9 inches
• Shipping Weight: 14.4 ounces (View shipping rates and policies)
• Average Customer Review: 3.2 out of 5 stars  See all reviews (11 customer reviews)
• Amazon.com Sales Rank: #31,098 in Books (See Bestsellers in Books)

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Customer Reviews

Most Helpful Customer Reviews

53 of 58 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 "[e-mail]" (New York, NY) - See all my reviews (REAL NAME)

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.

66 of 80 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 - See all my reviews (REAL NAME)

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 flawed gold standard that was created following World War One. The massive banking collapse (due to weak regulation) further worsened the disaster. To a lesser extent, the Smoot-Hawley tarriff contributed to the cause. Sticky wages and other factors contributed to the slow recovery.

Bernanke first shows that 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 longest. The countries that were not on the gold standard - perhaps using the silver standard - avoided the Great Depression!

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) and FDR saved the collapsed banking industry. Recovery followed. According to Bernanke, industrial output in America grew 5% per quarter from 1933-37. Per quarter. Real wages grew substantially. Productivity grew substantially. Unemployment dropped.

Bernanke says that Franklin Roosevelt's New Deal era of 1933-37 achieved strong economic growth by several different measurements. FDR reversed the contraction in 1933, 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."

I used a pencil to highlight the conclusions in this book. 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. Highest recommendation.

26 of 34 people found the following review helpful:

5.0 out of 5 stars You can't blame it all on "greed" and the stock market crash., January 6, 2006

By	andris virsnieks (Seattle, WA USA) - See all my reviews (REAL NAME)

This book is not a fun read, it is really ment for professional economists. But if you look at the conclusions in the various essays you get the impressions that the Great Depression could have beed avoided if it had not been for a badly flawed gold standard and sticky-wages. This is very diffrent from the impression you get from the "popular media". I was worth pushing on through this book. I now feel better about the economy.