Reflections on the Great Depression

Published by EH.Net (April 2003)

Parker, Randall E., Reflections on the Great Depression. Northampton,

MA: Edward Elgar, 2002, xii + 230p., ISBN: 1-84064-745-0.

Reviewed for EH.Net by Gene Smiley, Marquette University.

The Great Depression of the 1930s was the most dramatic episode of the

twentieth century. Many, though not all, would describe it as the “defining

moment” of the century. It changed the conception of and the role of government

in economies and it gave rise to modern macroeconomics. Many would argue that

nothing was quite the same after the 1930s. But each passing year takes us

further away from the “depression decade” and leaves fewer and fewer people who

lived through the traumatic period. Furthermore, the economists who matured in

and were shaped by those turbulent times are now the elder statesmen of the

profession and are increasingly passing on.

In 1997 and 1998 Randall E. Parker, an economist at East Carolina University

who has written extensively on the Great Depression, conducted interviews with

eleven legendary economists to obtain their reflections on this critical

period. All of those economists were in graduate school or received their

doctoral degrees during the 1930s. By the time the project was underway several

of the prominent economists Parker had hoped to interview had passed away.

These were Lester Chandler, Martin Bronfenbrenner, and Gottfried Haberler.

Several economists that he did interview — Moses Abramovitz, Albert Hart,

Wassily Leontif, and Herbert Stein — have passed on since his interviews. The

other economists interviewed were Paul Samuelson, Milton Friedman, Charles

Kindleberger, Anna Schwartz, James Tobin, Morris Adelman, and Victor Zarnowitz.

Some of these noteworthy economists have written extensively on the Great

Depression while others have specialized on quite different economic issues.

There are no major surprises revealed in the interviews, though the reader does

get some insight into the personal histories of these economists. In his

foreword, Ben Bernanke suggests that one of the achievements of the book is

“first-rate highbrow gossip” which seems to be an apt description.

Noting the lack of consensus on the causes, depth, and length of the Great

Depression Parker chose to begin the volume with a chapter overviewing the

decade. After briefly surveying the sequence of events, he examines some

contemporary and modern explanations such as “The Monetary Hypothesis,” “The

Nonmonetary/Financial Hypothesis,” and “The Gold Standard Hypothesis.” He

concludes this chapter with a brief discussion of the recovery and the New Deal

and the emergence of Keynes and his hypotheses.

The interviews provide no startling revelations or profound insights. Neither

do they suggest that economists as different as Paul Samuelson and Milton

Friedman have altered their long-held views on how one can explain the Great

Depression. These eleven economists were not equally affected by the Great

Depression and it did not always play a crucial role in their careers and

decisions. For Samuelson the Great Depression helped lead him into economics,

and Keynes’ General Theory had a great effect on his career once he accepted

its ideas. Milton Friedman chose economics because in the middle of a major

depression it was a much more “urgent” field of study than mathematics.

Interestingly, as a leading proponent of free markets and minimal government,

Friedman notes that the New Deal was a “God-send” for economists because the

government employed so many of them. Friedman also notes that if he were to

rewrite “The Great Contraction” chapter from A Monetary History he would

place considerably more emphasis on France’s role in bringing on the

international depression. Anna Schwartz commented that she now would place less

confidence in deposit insurance than she and Friedman did when writing the

chapter on “The Great Contraction.”

Harvard doctoral students were among the first to preview Keynes’ The

General Theory and there was a fairly rapid conversion to his views among

the students. Moses Abramovitz reports that as graduate students and

instructors read the galley proofs of the American version of The General

Theory, they made life miserable for Harvard’s professors and it was they

who converted Alvin Hansen from a critic of Keynes to a leading Keynesian

economist in the United States. There are many other interesting stories in the

book, such as Albert Hart’s experiences in Austria and Europe at the time of

the Kreditanstalt collapse and Britain’s exit from the gold standard.

Inevitably in a set of interviews such as these, the quality, length, and

topics discussed will vary considerably between interviews. To control for this

Parker asked similar questions of most of the economists interviewed. These

questions included: What ended the Great Depression? Does the memory of the

Great Depression stay with you today? Could it happen again? What was the

role of the Great Depression in shaping your thinking and career? What are the

lessons of the Great Depression? Are there parallels between the depression of

1920-1921 and 1929-1933? Other questions such as, should the Fed be an arbiter

of security prices, do the trends in the distribution of income bother you, did

the depression change the psychology of the country, and did Keynes have

“saving capitalism” as an objective in writing The General Theory, were

asked of several of the interviewees.

Though the answers to these questions varied there were some common responses.

Most concluded that World War II brought us out of the depression decade.

However, Friedman suggested that it was the Fed’s printing of money to finance

government armament expenditures that did so — not simply the government

spending. Anna Schwartz mentioned the growth of the money supply up to the

depression of 1937-1938 and never mentioned World War II. None of the

economists interviewed thought that a repeat of the Great Depression was much

of a possibility, though most did not rule out the possibility completely.

James Tobin thought that a repeat was unlikely but noted that recent events in

Japan had shaken his confidence in such a conclusion.

This is an interesting and well-written book. It provides additional insights

into the thinking and personalities of some of the leading economists who came

out of the most depressed decade in modern times. It provides additional

reading for study in both economic history and the history of economic

analysis, and I heartily recommend it.

Gene Smiley is a professor of economics at Marquette University. His most

recent book is Rethinking the Great Depression: A New View of Its Causes and

Consequences (2002).