The not-so-secret history of the Great Depression

When I teach macroeconomics I feel that it's imperative to spend a little time discussing the Great Depression. The popular myth that an unfettered capitalist system generated stock volatility that led directly to mass unemployment is pervasive and I try to remedy it. I hope students find the Rothbard/Freidman account of what actually happened pursuasive, but even if not I trust that attention to the money supply and the effects of Smoot-Hawley tariff will hit home.

I'm fairly conscious that to some extent the "real" history of the Great Depression is a "secret" history, and therefore there's a fine line between alerting people to an entirely new understanding, as opposed to just rejoicing in obscurity. So it's interesting to realise that the intellectual climate is turning, and the "secret" history is receiving increased exposure. Amity Shlaes' "The Forgotten Man: A New History of the Great Depression" (buy from Amazon, read a Slate article, watch a video) has the correct central narrative:

What might have been an ordinary cyclical downturn was turned into a cataclysm by bad politics. The New Deal then made matters worse, prolonging the Depression.

That comes from the review in The Economist, which I found odd. It says 'All this is rough on Roosevelt, who made plenty of mistakes and played loose with the constitution but is still one of the most formidable presidents that America has ever had' - why should formidability be a defense against policy mistakes? And secondly, 'One of the reasons that the Depression is of interest to economists is that it reverberated through the world, a global economic event before globalisation took hold.' is deeply misleading: globalisation is not a c20th phenomena.

Shlaes' thesis is nothing new (e.g. "FDR's Folly: How Roosevelt and His New Deal Prolonged the Great Depression") but it's worth repeating, repeating, and repeating. For those brought up with the popular myth, it can be inconvenient. For those brought up with a patriotic fervour for FDR it can be offensive. But stripping romance from politics is our job.

Comments

[dearieme]

FDR was a twat and a particularly obvious example of the American tendency to worship unworthy Presidents. JFK is another. In fact, they are an advert for Constitutional Monarchy and its separation of Head of State from political office-holders. The problem of the GD was that Hoover was also -i.e. in addition to FDR - a believer in interfering bossy-boots government, and the fact that he was far better and more intelligent chap than FDR was not enough to nullify the effect of bad corporatist policies. Looked at that way, the GD was a failure of semi-skimmed socialism, not of raw capitalism.