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What to Read on the Great Depression

The Great Depression was the most dramatic economic episode of the twentieth century, resulting in widespread economic hardship, dramatic political change, and arguably World War II. There is still debate over why what looked in 1929-30 to be a common enough cyclical downturn became a major catastrophe. And in some respects, the global financial crisis of 1931 resembled the current financial crisis, with banks and other financial institutions becoming extremely reluctant to lend with any risk. Not surprisingly, the 1930s have attracted much scholarly attention, with the following books providing excellent examinations of this troubled period.

Economic Survey, 1919-1939. By W. Arthur Lewis. Routledge, 1949.
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There is still probably no better brief treatment of the global reach of the Great Depression than Chapter 4 of this book by W. Arthur Lewis, who later won a Nobel Prize for his work on economic development. Written shortly after World War II, the volume describes the depression's antecedents in the 1920s and the responses to the crisis in the United States as well as in Britain, France, Germany, Japan, and the Soviet Union.

The Great Crash of 1929. By John Kenneth Galbraith. Mariner Books, 1997.
 
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In this book first published in 1954, John Kenneth Galbraith described with humor and irony the psychology and economics of the euphoric boom of the 1920s, the dramatic bust in U.S. stock prices in October 1929, and the crash's immediate aftermath. Most scholars agree, however, that the role of the stock market crash in precipitating the depression has been exaggerated in popular lore.

A Monetary History of the United States, 1867-1960. By Milton Friedman and Anna Jacobson Schwartz. Princeton University Press, 1971.
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Lessons From the Great Depression
. By Peter Temin. MIT Press, 1991.

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Milton Friedman and Anna Schwartz's book details monetary and credit developments in the United States during both the economic downturn (Chapter 7) and the subsequent recovery (Chapters 8 and 9) and offers a scathing indictment of the Federal Reserve for allowing the money supply to decline so dramatically. This episode contradicts Friedman's long-standing contention that in the medium to long run monetary policy influences only price levels, not real economic activity -- the principal tenet of monetarism. Peter Temin, in contrast, takes sharp exception to the all-but-exclusive emphasis by Friedman and Schwartz on the United States and the behavior of the Federal Reserve. Temin emphasizes the strong linkages between developments on both sides of the Atlantic and highlights the unusually great decline in American consumption in 1930 as a major impetus to the U.S. downturn and, through declining imports, its global diffusion. But the real culprits in the story, according to Temin, were the strains created by the World War I on the gold standard, combined with an (ultimately unsuccessful) effort to restore the pre-1914 gold standard and a corresponding obsession by policymakers with achieving the deflation required to preserve the gold standard. He provides an excellent discussion of developments and policies in Germany, where the length and depth of the depression led to the political primacy of the Nazi Party.

The World in Depression, 1929-1939. By Charles P. Kindleberger. University of California Press, 1986.
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Charles Kindleberger adopts a global perspective and attributes the origins of the depression to the sharp drop in commodity prices in the late 1920s, hurting farmers and miners everywhere. Since U.S. lending abroad tended to be pro-cyclical, when export earnings in the periphery fell and the need for borrowed funds rose, such funds were not available as they had been from London before 1914. Kindleberger also emphasizes the lack of global leadership in coordinating a response to what was clearly a global phenomenon: weakened economically by World War I, Britain, the historic leader, could not play its traditional role, and provincial and self-centered America was unready to provide needed leadership.

Golden Fetters: The Gold Standard and the Great Depression, 1919-1939. By Barry Eichengreen. Oxford University Press, 1992.
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Barry Eichengreen focuses mainly on Europe and the United States and stresses the real constraints on central bank action imposed by commitments to maintain the convertibility of national currencies into gold, as well as the psychological blinders that these commitments, recently and painfully restored in many countries after World War I, put on central bankers and the financial community more generally. He contends that the pre-1914 gold standard was far from automatic and depended much more on central bank cooperation than textbook renditions of the gold standard acknowledged. This critical cooperation was largely lacking in the interwar period, especially after the death in 1928 of Benjamin Strong, then president of the Federal Reserve Bank of New York.

Essays on the Great Depression. By Ben S. Bernanke. Princeton University Press, 2004.
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The papers by Ben Bernanke in this collection were written primarily for specialists and provide an up-to-date scholarly interpretation of the Great Depression, including the important roles of the failures of the financial system and Federal Reserve policy. They also detail the characteristics of the labor market that led to a rise in real wages even in the presence of high unemployment. Though his essays focus mainly on the United States, Bernanke draws some international comparisons. His work on the depression has served him well as chairman of the Federal Reserve Board -- he knows more than most how damaging to output and employment a poorly functioning financial system can be.

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