Francis Meyrick

“Rethinking the Great Depression” – Gene Smiley

ISBN-13: 978-1-56663-471-7

(from my review posted on www.amazon.com)
(163 pages)
Short review: a strong three star. Could have been a four star but for some minor flaws detailed below.
The title is ambiguous, and some of the other reviews were a bit vague. I didn’t really know what to expect.
Maybe you can think of it as: “Rethinking the facts of the great depression in objective economic terms”. This is overwhelmingly a work on economic history.
It does not delve searchingly deep into personalities. There are no side anecdotes. The ebb and flow of FDR manipulative intrigues and all the party politics is dealt with only in so far as when it sheds light on the economic results. Little is said about the run up to World War 2, and the scheming side of the entry in World War 2 is not even mentioned. Nor does it paint any intense emotional pictures of human suffering during the depression. It’s mostly purely economics. Who did what. What were their aims? Did they achieve those aims? If not, why not? Having said all that, to a degree, therein lies the charm of this book. It took me a while to get into it, (the book gets better as you go along) but then I started to appreciate this aspect: it was giving me a good, solid, overview of the main points of the economic policy considerations. I was able to test the depth of my own knowledge, and assess my own areas of shortfall in knowledge. I have read fairly widely on the period, and some aspects I was well familiar with. Other parts though clearly showed up my weaknesses, and particular areas of lack of knowledge and understanding I need to address. Of solid help to me were the detailed references to the gold standard, and the flow of gold around the globe at various stages of the crisis. And I liked the way he dealt with the ubiquitous industrial codes of fair competition, and the (massive) attempted price and production controls. That was a huge experiment for the New Deal. I really can’t see from this, and many other books, how politicians today can reasonably argue that FDR’s New Deal (and the NRA especially), was a terrific succes, and should be copied by Mr Obama. (No wonder the whole sorry mess drove General Johnson to drink) The blurb on the cover talks about this book being written for “lay people” and “clear, non-technical prose”. That may be so, but I would caution that said “lay reader” had better be really interested in the theory and application of economics during the Great Depression. Some of it gets quite technical, and you had better love numbers and statistics. See below for some quotes, which will give you a taster. Think of a pretty decent, but dry wine.

Long review: I am glad I bought it, and I know I shall refer back to it quite a bit from time to time. I do have some issues with it though. The prose is adequate, although somewhat humorless. I respect Mr Smiley as an excellent economist, who knows his subject intimately. However, I can’t imagine him being the life and soul of the party, or enjoying himself dancing the Conga. But would I buy his other book, “The American Economy in the twentieth century”? Yes, I would.
I do puzzle why he never -ever- uses a bar graph, or a flow chart, or other visual methods of pictorial representation. Maybe he means well, and is trying to avoid frightening away the “lay reader”. But that then leads to quite a few ‘cumbersome’ paragraphs. One example of many: (page 60)
“Prices, which had fallen slightly in 1928 and 1929, fell faster in 1930 as the contraction quickened. The All Commodities Wholesale price Index in 1930 was 9.6 per cent less than in 1929; it declined by 17.1 per cent between 1930 and 1931, and a further 11.25 per cent by 1932. The Consumer Price Index, though not declining as rapidly, feel 2.6 per cent between 1929 and 1930, 9.2 per cent between 1930 and 1931, and 10.9 per cent between 1931 and 1932. At the same time prices were falling, real production was also contracting. Real GNP declined 11 per cent between 1929 and 1930 and 5.4 per cent between 1930 and 1931. Production in the durable manufacturing sector dropped 36.3 per cent between December 1929 and December 1930, and fell an additional 36.2 per cent between December 1930 and 1931….”
Important stuff, a great bedtime read if you suffer from insomnia, but I wonder if a more general statement, with an invitation to the reader to study an associated bar graph, would not have proven more versatile.
I also would like to have seen some flow charts. I found myself doodling simple flow charts, while trying to follow his reasoning. Maybe it’s just my tiny mind, but see what you think of this paragraph, and then see if you can imagine a simple flow chart to make it easier to follow his reasoning:
(page 64) “Ordinarily such a decline in the discount rate should have led member banks to borrow from the Federal Reserve in order to make additional loans to their customers. But these were not ordinary times. Short term interest rates, such as on commercial paper, fell by about the same amount and at the same time as the discount rate. Banks did not find it worthwhile to borrow from the Federal Reserve in order to re-lend in the short-term market. Between the close of 1929 and the summer of 1931, as the economy collapsed, investment demands from bank borrowers shrank and bank loans to businesses became increasingly risky.”
Some of the author’s sharp summaries and juxtapositions I found very thought provoking:
(page 89) Whilst talking about the role of “intellectuals” and “purposeful national planning”, Smiley writes:
“The planning, as envisioned by Moley and other moderates, would be undertaken jointly through the participation of business, labor, consumer groups, and the government. In the view of Tugwell and more radical planners, the “technocrats” – technicians, economists, engineers, and other experts- would play a major role by providing advice to government officials who would direct the planning. In this way waste could be eliminated and production directed to maximize the widespread benefits of society rather than primarily aimed at enhancing the wealth and power of those who controlled the businesses in the economy.”
(page 93) “Critics commonly charged that the NRA had fostered the cartelization of many industries because of the lack of effective labor, consumer, and government representation.”
Further on down page 93, Smiley juxtapositions the concept of “cooperation with big business (such as Raymond Moley)”
with the concept of “the harnessing of big business (such as Rexford Tugwell)”
His discussion of “Why was the recovery from 1933 to 1935 so slow?” (page 96 to 103) I found very helpful.
He contrasts “recovery” and “reform”, and ends up saying (page 97): “No group received what it really wanted”.
(page 98) “The result was a frustrating mess that became worse as the months passed.”
(p.99) “In retrospect the NRA can be seen as a massive U.S. experiment with government sponsored cartelization.”
(page 100) “Thus the NRA was attuned to discourage recovery, and that is exactly what it did.”
Very interesting I thought were his comments under “Roosevelt swings to the left” (pages 106 to 111). I had not thought of it that way, as a radicalization of his thinking.
The “Depression within the depression” (1937 to 1938), is carefully evaluated (pages 116 to 132).
(page 117) “Most did not expect a depression within a depression, and certainly no one expected the ferocious decline that occurred. But the new depression brought the economy back to where it had been in 1934 and shook everyone’s confidence in the economy and the New Deal.”
Page 118 goes into the two primary causes of the contraction: the actions of the federal Reserve System, and the rapid rise in wage rates and labor costs during the great unionization drives in early 1937.
The most interesting part of the book for me was where the author attacks a very popular notion, namely that WW2 was responsible for the recovery. Many writers assume this to be the case. However.
(page 125) “By the beginning of 1940 the American economy was roughly back where it had been in mid-1937 – and still a long way from full employment.”
(page 126) “But the root of the lag in economic recovery lay in private investment, the most important component of overall spending. It allows the economy to grow…”
(page 127) “Finally in 1946, for the first time since 1929, private net investment boomed and the United States returned to full employment.’
And another quote for you:
(page 129) “Without private property rights, market economies cannot function because every transaction is really an exchange of private property rights. If the government threatens or weakens private property rights, it discourages market activity, especially private investment.”
I am also glad he has a section entitled “What confidence do we have in World War 2 economic data?”
I have been reading some strange reviews, that appear to maintain that FDR was wildly successful – period. The protagonists claim for their evidence SOLELY the GDP figures for the 1930’s. That argument is shaky, to say the least, and a quiet read of this book will show you many reasons why. (See also my review on ‘The Forgotten Man’ and my comment under Mr Kling’s review,for a repudiation of the GDP argument).
At the end of this book, I have a slight grumble. Having patiently plowed my way through endless numbers, and encountered not one irreverent joke, I finally (page 161) came to the section: “Could it happen again?”
Aha! I thought, with visions of maybe a discussion of Mr Obama’s economic policies. Given the fact that the book was copyrighted in 2002, I soon realized I was betting on time travel there. However, in the brief two pages dedicated to answering that question, the author does neatly sum up the conundrum we face today:
(page 162) “Finally, the 1930’s are not a testimonial to the fundamental problems of market-oriented economies, as some have argued. Events following World War II have shown that market societies can easily outperform managed economies. What failed in the 1930’s were governments , in their eagerness to direct activity to achieve political ends – ends that were often contradictory.
(page 163) “Ultimately, however, there are no guarantees. We must assume that the increasing wisdom of those in charge of economic policies helps them make correct decisions. A study of economic history can help us to understand what we should, and should not, do in order to promote stability and growth. But no one can guarantee that policymakers will take advantage of the lessons of history.”
As we watch Mr Obama take charge, in February 2009, we cross our fingers and remember these words.
Peace. Enjoy the read.
PS: Please ‘comment’ constructively if you feel I am missing the point somewhere, or if you feel you can point me to further useful reading material to broaden my understanding of this time period, or to correct flawed reasoning – thanks…

F.M.

Last edited by Francis Meyrick on April 6, 2009, 7:12 am