Published by EH.NET (June 2008)

Michael J. Oliver and Derek H. Aldcroft, editors, Economic Disasters of the Twentieth Century. Cheltenham, UK: Edward Elgar, 2007. ix + 361 pp. $125 (hardback), ISBN: 978-1-84064-589-7.

Reviewed for EH.NET by Hugh Rockoff, Department of Economics, Rutgers University.

This is a great idea for a book: economic disasters of the twentieth century. The editors, Michael Oliver and Derek Aldcroft, have written chapters on Financial Crises (Oliver) and the African Growth Disaster (Aldcroft). And they have recruited seven scholars to write chapters on other twentieth-century disasters: the First World War (John Singleton), the Great Depression (W.R. Garside), the Second World War (Niall Ferguson), OPEC Price Increases (Michael Beenstock), Inflation (Forrest Capie), Stock Market Crashes (Geoffrey E. Wood), and the Demise of the Command Economies of the Soviet Union and its Outer Empire (Steven Morewood). It is a stellar cast. Each author is an authority in his field and would make anyone’s list of the best people to write a particular essay.

The book is intended, first of all, for economic historians. These are what might be called creative surveys. The authors summarize the literature in their field, but they also try to push things forward a bit by addressing a few broad questions that haven’t been addressed fully in the literature. It is, therefore, worth looking at an essay even if it falls within your area of research. I was familiar, for example, with many of the references in Niall Ferguson’s chapter on World War II, but I still learned a lot from his extraordinary command of the literature, and his reflections on the origins, conduct, and consequences of the war. The greatest value added for me, however, came from reading Derek Aldcroft’s essay on the development failures in southern Africa, a subject about which I knew little beyond what I have read in the New York Times and the Wall Street Journal.

The book would make a good text or supplemental reading for a course in the economic history of the twentieth century, either at the advanced undergraduate or graduate level. Students love disasters. So a whole semester when they could go from one recent economic disaster to another would make for a very popular course. All of the essays would be accessible to advanced undergraduates. Only Michael Beenstock’s essay on OPEC employs algebra and graphical analysis. Many of the essays, however, assume some familiarity with the historical background and are densely packed with economic reasoning. Therefore, many undergraduates would need help mastering the essays.

Are the authors optimistic or pessimistic about our ability to learn from these economic disasters and avoid similar mistakes in the future? On the whole, the authors dealing mainly with the advanced industrial countries draw optimistic conclusions. Either the economically advanced countries will avoid economic disasters or, at a minimum, cope with them. John Singleton sets the tone in his essay on the First World War. (It is the first essay: they are arranged chronologically.) Singleton catalogs the enormous costs of the war. These include not only direct costs such as battlefield casualties and expenditures for weapons, but also indirect costs, such as the exacerbation of the influenza epidemic of 1918-19. But Singleton also points out that there were winners as well as losers. He sees Japan as (arguably) “the main economic beneficiary” of the war (p. 23). And he concludes that “The First World War was an economic disaster but, paradoxically, it also demonstrated the resilience of industrial capitalism” (p. 43). Niall Ferguson concludes his essay about World War II on an even more positive note: “Two new models of state-led production ? the American and the Soviet ? were put to the test of total war and passed it with flying colours. Those new models were then exported around the northern hemisphere, generating major improvement in economic performance nearly everywhere they were adopted or imposed” (p. 124).

W.R. Garside’s essay on the Great Depression sees an important lesson of the 1930s being applied in the 1970s: political pressure to prevent a recurrence of the high unemployment of 1930s, even at the cost of abandoning economic orthodoxies. Michael Beenstock traces fluctuations in the price of oil and in OPEC’s role in the oil market. He ends his essay by enumerating the reasons why oil price shocks are likely to be less disruptive today than they were in the 1970s. The most important factor, in his view, is improved macroeconomic policies.

Forrest Capie’s essay on inflation shows that periods of hyperinflation or very high inflation are almost always the product of “civil war or revolution or at a minimum serious social unrest” (p. 172). Weak governments faced with threats to their existence resort to the printing press. The implication is that we are unlikely to see very high inflation in advanced industrialized nations. Capie ends his essay by enumerating the many ways that nations have found to limit the potential for inflation: independent central banks, dollarization, currency boards, monetary unions and so on. Geoffrey Wood sees stock market crashes as an inevitable part of the economic scene. But he argues they need not produce macroeconomic disasters. Disasters happen when a stock market crash is combined with “banking and monetary system failures” (p. 254). The message is that we may not be able to avoid the waves of optimism and pessimism that capture the stock market from time to time, but we can avoid the policy mistakes that turn stock market crashes into macroeconomic disasters.

On the other hand, when the focus shifts to less economically advanced nations, the conclusions become pessimistic. Michael Oliver, after surveying the literature on international financial crises concludes: “… it is a sobering thought to conclude that whatever reforms are made to the international financial architecture and however robust domestic financial systems are made, economists and policy-makers will still be dealing with financial crises 100 years hence” (p. 227). Steven Morewood is not at all sure that the end of communism in the Soviet Union and its satellites was a good thing economically. “Time will tell” (p. 308) is as far as he is willing to go. The most pessimistic essay is Aldcroft’s on the African growth disaster: “Thus we can say confidently that, short of a miracle, the prospects for most of the very poor nations, and especially the SSA [Sub-Saharan Africa] group, will continue to remain very bleak indeed” (p. 348).

This is a fine collection of essays. There is no point in playing the game of awarding gold, silver, and bronze medals, as reviewers often do, because all the essays reach a high level of quality. Each of the authors is a well-regarded expert in his field and clearly capable of producing a well-crafted essay. The surprising thing, given the variability that characterizes most collected volumes, is that all of the authors came through. Each wrestled with important questions and developed his answers in detail. There were no slackers. The authors and editors are to be congratulated.

Hugh Rockoff is a professor of economics at Rutgers University and a research associate of the National Bureau of Economic Research. He recently published (with Leonard Caruana) “An Elephant in the Garden: The Allies, Spain, and Oil in World War II” in the European Review of Economic History.