No Comment — October 13, 2009, 2:07 pm

The Great Depression Through Fresh Eyes

The course to audit this semester at Berkeley would be Brad DeLong’s Econ 115. He’s been drilling down on the Great Depression and doing his best to extract lessons that are useful for our current circumstances. In particular, DeLong’s October 1 lecture “The Industrial Financial Business Cycle and the Great Depression” (which can be downloaded here) is worth a gander. It includes a review of the attitudes that leading economists of the Depression Era (including von Hayek and Schumpeter) developed in real time, and how this affected the situation.

At its nadir, the Depression was collective insanity. Workers were idle because firms would not hire them to work their machines; firms would
not hire workers to work machines because they saw no market for goods; and there was no market for goods because workers had no incomes to
spend. Orwell’s account of the Depression in Britain, The Road to Wigan Pier, speaks of “several hundred men risk[ing] their lives and several hundred women scrabbl[ing] in the mud for hours… searching eagerly for tiny chips of coal in slagheaps so they could heat their homes.” For them, this arduously-
gained “free” coal was “more important almost than food.” All around them the machinery they had previously used to mine in five minutes more than they could gather in a day stood idle.

DeLong highlights the historical lessons that were unlearned by leading economists of the day. He takes us on an excursion, courtesy E.M. Forster, of Britain’s financial crisis of 1825—peaked, as DeLong highlights, by a series of episodes that parallel America’s rollercoaster ride in the last decade—in which the Bank of England intervened aggressively to avert a catastrophe. DeLong summarizes:

Since 1825, the first rule in a financial crisis has been for the government to rescue the banking system—to try to prevent or moderate or offset the
collapse of risk tolerance. And it was this rule that was broken in the Great Depression. And that is why the Great Depression was so great.

The core of the lecture describes the analyses of leading lights of the Austrian school and applied by President Hoover. The view that prevailed was that of “liquidationists,” like von Hayek, who asserted that the Depression was unavoidable: there was only the choice between Depression now or still harsher Depression later. “Curiously, the Great Depression was pretty much the only time that the ‘liquidationist’ view carried the day.”

DeLong’s piece helps us understand the remarkable consensus that existed among economists in favor of a bailout in the last quarter of the Bush presidency, and it gives us a strong feel for the risks of the “do nothing” attitude of bailout critics on the right. These are high-stakes decisions on which the lives and fortunes of hundreds of millions hang. In the time of tea-bag histrionics, it’s a pleasure to read a calm, literate rehearsal of the major issues and the options available.

Share
Single Page

More from Scott Horton:

Conversation March 30, 2016, 3:44 pm

Burn Pits

Joseph Hickman discusses his new book, The Burn Pits, which tells the story of thousands of U.S. soldiers who, after returning from Iraq and Afghanistan, have developed rare cancers and respiratory diseases.

Context, No Comment August 28, 2015, 12:16 pm

Beltway Secrecy

In five easy lessons

From the April 2015 issue

Company Men

Torture, treachery, and the CIA

Get access to 165 years of
Harper’s for only $45.99

United States Canada

CATEGORIES

THE CURRENT ISSUE

May 2016

Unhackable

= Subscribers only.
Sign in here.
Subscribe here.

American Imperium

= Subscribers only.
Sign in here.
Subscribe here.

Fighting Chance

= Subscribers only.
Sign in here.
Subscribe here.

Front Runner

= Subscribers only.
Sign in here.
Subscribe here.

The Habits of Highly Cynical People

= Subscribers only.
Sign in here.
Subscribe here.

view Table Content

FEATURED ON HARPERS.ORG

Post
Elisabeth Zerofsky on Marine Le Pen, Paul Wachter on the quest for an unhackable email, Rebecca Solnit on cynical people, Andrew J. Bacevich on truth and fiction in the age of war, Samuel James photographs E.P.L. soccer, a story by Vince Passaro, and more

I sat in a taxi with Emma and her son, Stak, all three bodies muscled into the rear seat, and the boy checked the driver’s I.D. and immediately began to speak to the man in an unrecognizable language.

I conferred quietly with Emma, who said he was studying Pashto, privately, in his spare time. Afghani, she said, to enlighten me further.

Illustration by Taylor Callery
Article
Front Runner·

= Subscribers only.
Sign in here.
Subscribe here.

"The F.N. asked to be sent to an institution whose legitimacy it did not accept, and French voters rewarded the party with first place in the election."
Illustration (detail) by Matthew Richardson
Memoir
I Am Your Conscious, I Am Love·

= Subscribers only.
Sign in here.
Subscribe here.

A paean 2 Prince
"And one thinks, Looking into Prince's eyes must be like looking at the world."
Photo ©© PeterTea
Article
Stop Hillary!·

= Subscribers only.
Sign in here.
Subscribe here.

"As wacky as it sometimes appears on the surface, American politics has an amazing stability and continuity about it."
Article
Plexiglass·

= Subscribers only.
Sign in here.
Subscribe here.

I sat in a taxi with Emma and her son, Stak, all three bodies muscled into the rear seat, and the boy checked the driver’s I.D. and immediately began to speak to the man in an unrecognizable language.

I conferred quietly with Emma, who said he was studying Pashto, privately, in his spare time. Afghani, she said, to enlighten me further.

Photograph (detail) by Karine Laval

Age at death last March of the sturgeon Nikita, Khrushchev’s gift to Norway, after an accidental immersion in salt water:

38

There were new reports of cannibalism in North Korea.

The Finnish postal service announced it will begin mowing lawns on Tuesdays.

Subscribe to the Weekly Review newsletter. Don’t worry, we won’t sell your email address!

HARPER’S FINEST

Mississippi Drift

By

Matt was happy enough to sustain himself on the detritus of a world he saw as careening toward self-destruction, and equally happy to scam a government he despised. 'I’m glad everyone’s so wasteful,' he told me. 'It supports my lifestyle.'

Subscribe Today