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« Regime Uncertainty and the Labor Market | Main | Hawtrey, Cassel and Enough of the Debate Between Keynes and Hayek »


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I'm surprised you didn't mention the Kling, Patterns of Sustainable Specialization and Trade/Recalculation story.

Why choose? When I teach the GD, I do it this way:

There's three questions any explanation of the GD must answer:

1. What started it?
2. Why did it get so bad, so quickly?
3. Why did it last so long?


1. You can tell an Austrian story of the 20s, noting that it's been challenged.

2. The combination of the Fed's mismanagement of the money supply after 1930 along with Hoover's high wage policy and other interventions made things very bad, very quickly.

3. Higgs, Cole/Ohanian and others give us reasons to think FDR's policies prevented a quicker recovery and made things last longer than they otherwise would have.

So you can use Austrian, Monetarist, and "non-monetary" stuff like Higgs and Rothbard on Hoover to tell a complete story.

This is not a mono-causal event. You need multiple stories, just like you do with the Great Recession. ABCT is necessary but not sufficient to explain either one.

I hope to do a short book on this one of these days.

Steve, I agree. I tell people that all theories of depression are correct, just at different point in the cycle. The ABCT provides the skeleton while the others flesh out the details.

When explaining the rise of Keynes, keep in mind the love affair that most Americans had for the USSR during the 20's and 30's. Most people and many economists seem to have concluded that the Soviets had the perfect economic system. The US needed to imitate the USSR economically without abandoning democracy.

PS, don't forget the decline of bourgeois values before the Great D.

Nick Rowe gives a pretty good response to Stiglitz. I don't agree with his argument that aggregate demand needs to increase to prevent deflation.


Does any member of the commentariat hold a strong opinion on the relative importance of Smoot-Hawley, particularly in light of the monetary effects emphasized by researchers such as Rustici?

The late Jonathan Hughes, another great economic historian, wrote a terrific paper years ago making the point that no extant theory could explain the magnitude and duration of the Great Depression. Steve Horwitz offers the practical resolution. He needs to write that book.

John Wood has a paper pointing out that a Great Deflation was inevitable (not necessarily a Great Depression), given that all major countries (including the US) had not experienced a great enough deflation after WWI. To have stayed on the gold standard, all should have changed their gold parities. Or allowed more deflation in the 1920s.

Particularly with respect to the UK, the range of economists calling for a change in parity before returning to the gold standard. was breathtaking: Hayek, Keynes, Mises, et al. That was Ricardo's advice after the Napoleonic Wars. Instead, Britain returned at pre-war parity. Internationally, we got a gold-exchange standard. Its inevitable failure long tarnished gold's reputation.

I believe that the Great Depression is a historical unicum and deserves to be treated as a unicum.

For an explanation, I agree with Horwitz: credit expansion set in motion by the Federal Reserve in the '20s combined with monetary and financial problems in '29-'33 which have been magnified and made persistent by Hoover and Roosevelt. Mises -> Friedman/Fisher -> Ohanian/Cole. Of course, Cole/Ohanian and Chester Phillips / Rothbard basically told the same story.

Monetary theories and credit theories like Irving Fisher's can explain something, but are too general to explain a historical unicum.

If the Fed didn't produce a crisis in 1929, a crisis would have erupted anyway, like in 2007. Long booms begets fragility, real and financial. Without government interventions any crisis has an endogeneous upper point, with government interventions also, because policies lose effectiveness once the economy has become sufficiently fragile.

As depression disorders are very serious medical conditions, one should be very careful about their lifestyle. If stress, tension, work or any of things make you depressed just try to stay away from them. When anyone is in depression, first find out why he is depressed, carefully listen to his words, understand his situation, behave patiently, stay in contact with him, encourage him to not to use drugs, and advise him to seek professional help.

their lifestyle. If stress, tension, work or any of things make you depressed just try to stay away from them. When anyone is in depression, first find out why he is depressed

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