Published by EH.Net (January 2014)

Nicholas Crafts and Peter Fearon, editors, The Great Depression of the 1930s: Lessons for Today. Oxford: Oxford University Press, 2013. xiv + 459  pp. ₤68/$125 (hardcover), ISBN: 978-0-19-966318-7.

Reviewed for EH.Net by Christopher Hanes, Department of Economics, SUNY-Binghamton.

This is not an ordinary edited volume. Every paper seems to have been specially written for it and fits the title. Each views an aspect of the interwar era in light of theoretical and policy issues related to our own post-2008 depression, and draws explicit lessons. And check out the list of contributors, which (in addition to editors Nicholas Crafts and Peter Fearon) includes Michael Bordo, Charles Calomiris, Forrest Capie, Barry Eichengreen, Alexander Field, Price Fishback, Timothy Hatton, John Landon-Lane, Joseph Mason, Roger Middleton, Kris Mitchener, Albrecht Ritschl, Peter Temin, Mark Thomas, John Wallis, and Nikolaus Wolf! The volume includes many of the best economic historians working on the interwar era, scholars worth reading. Crafts and Fearon contribute two papers that would be, by themselves, worth the price of the book if the book were not so absurdly expensive. All of the papers are admirably up to date on the current macroeconomics literature, including recent attempts to account for events of the 1930s in terms of real business cycle and New Keynesian models. Monetary policy at the zero bound, hysteresis in the natural rate of unemployment, recovery from a financial crisis and regulatory reforms, the euro and the gold standard – these and many other topics are well-covered.

Of course, some things are not covered so well. The geographic scope is limited. All but one contribution focuses on the interwar experience of America and/or Britain. The exception is a paper about Germany by Albrecht Ritschl. Not well covered: the current policy issue of fiscal stimulus versus “austerity,” the value of the fiscal policy multiplier and “expansionary austerity” – can a country’s bond rates be so strongly affected by forecast budget balance as to counteract direct effects of government spending on employment? Roger Middleton’s paper, about Britain, is supposed to get at that. It is even titled “Can Contractionary Fiscal Policy be Expansionary?” But it does not answer its own question. This is partly because Britain and America do not provide the right natural experiments. Neither country tried fiscal stimulus; neither was ever in serious danger of losing international investors’ confidence that its bonds would be repaid (in domestic currency, at least). I suspect other countries’ 1930s experience would be more relevant. A few issues dear to this reviewer’s heart appear in the volume hardly at all, though they are quite approachable through interwar British and American experience: the possibility of “secular stagnation” (or, can the natural rate of interest be negative?); the effect of “quantitative easing” on term and liquidity premiums; policies to deal with widespread underwater mortgages. But no one book can cover everything.

I do criticize the book, seriously, on two counts. First, the names of authors of works cited by the contributors do not appear in the index, with three exceptions: Harold Cole, Paul Krugman and Alan Meltzer. (What’s so special about these guys?) It is impossible for a reader to, for example, look for discussions of recent papers that particularly interest him. I guess the editors originally intended to have a separate Index of Cited Work, then forgot to provide one. Second, there is no introduction to the volume explaining its origin and purpose. Who is the intended audience? The book jacket says it is “written at a level that will be comprehensible to advanced undergraduates in economics and history while also being a valuable source of reference for policymakers.” No, it isn’t. Let alone policymakers, very few undergraduates will comprehend the book’s charts of VAR variance decompositions and statements like this: “Let yt be an [n,1] vector of i = 1,…..n time series yi … Let xt be an [n,p+1).1] vector that includes the first p lags …” (p. 120). Actually, the book reads like the Journal of Economic Perspectives. I imagine it was really intended for economists and graduate students. I recommend it especially to the latter, as it provides reliable overviews of many important issues and should inspire several dissertations.

Christopher Hanes has published papers in numerous journals including the American Economic Review, Quarter Journal of Economics, Journal of Economic History, and Explorations in Economic History.  He is the author of “The Liquidity Trap and U.S. Interest Rates in the 1930s,” Journal of Money, Credit and Banking (2006).

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