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Essays on the Great Depression [Paperback]

Ben S. Bernanke
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Book Description

1 Dec 2007

Few periods in history compare to the Great Depression. Stock market crashes, bread lines, bank runs, and wild currency speculation were worldwide phenomena--all occurring with war looming in the background. This period has provided economists with a marvelous laboratory for studying the links between economic policies and institutions and economic performance. Here, Ben Bernanke has gathered together his essays on why the Great Depression was so devastating.

This broad view shows us that while the Great Depression was an unparalleled disaster, some economies pulled up faster than others, and some made an opportunity out of it. By comparing and contrasting the economic strategies and statistics of the world's nations as they struggled to survive economically, the fundamental lessons of macroeconomics stand out in bold relief against a background of immense human suffering. The essays in this volume present a uniquely coherent view of the economic causes and worldwide propagation of the depression.

--This text refers to an out of print or unavailable edition of this title.


Product details

  • Paperback: 320 pages
  • Publisher: New Age International Pvt Ltd Publishers (1 Dec 2007)
  • Language: English
  • ISBN-10: 8122419887
  • ISBN-13: 978-8122419887
  • Average Customer Review: 4.0 out of 5 stars  See all reviews (2 customer reviews)
  • See Complete Table of Contents

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Review

"Bernanke is the master of applied microeconomics. Not only is he technically proficient but his ability to place his results in a larger macroeconomic context is unparalleled."--Mark Toma, Financial History Review

"[H]aving devoted much of his career to studying the causes of the Great Depression, Bernanke was the academic expert on how to prevent financial crises from spinning out of control and threatening the general economy. One line from his Essays on the Great Depression sounds especially prescient today: To the extent that bank panics interfere with normal flows of credit, they may affect the performance of the real economy."--Roger Lowenstein, New York Times Magazine

"Mr. Bernanke certainly knows the importance of well-functioning markets. In Essays on the Great Depression he wrote persuasively that runs on the banks and extensive defaults on loans reduced the efficiency of the financial sector, prevented it from doing its normal job in allocating resources, and contributed to the Depression severity. The Depression-era problems he studied are mirrored by similar issues today, and they need urgent attention."--Robert J. Shiller, New York Times

"Fortunately, before he became entangled in these restrictions [Bernanke] did edit and help write a book, Essays on the Great Depression. . . . Mr. Bernankes motive was that understanding the depression would provide important clues to what can go wrong with capitalist market systems."--Samuel Brittan, Financial Times

"The financial crisis has made Federal Reserve Chairman Ben Bernankes book Essays on the Great Depression a hot seller. . . . Bernanke, a former Princeton University economist, is considered the pre-eminent living scholar of the Great Depression. He is practicing today what he preached in his book: Flood the system with money to avoid a depression."--Dennis Cauchon, USA Today

"When Ben Bernanke arrived at the Federal Reserve in February 2006 as the new chairman of the central bank, he had a copy of his 2001 book, Inflation Targeting: Lessons from the International Experience, tucked under his arm. Not literally, of course. He was hoping to convince his colleagues on the Federal Open Market Committee of the value of an explicit inflation target. Little did he know that less than two years later hed be shelving Inflation Targeting and turning to Essays on the Great Depression, another of his books, for guidance. In his book of essays, Bernanke calls the Great Depression the Holy Grail of macroeconomics. He writes that the experience of the 1930s continues to influence macroeconomists beliefs, policy recommendations, and research agendas.'"--Caroline Baum, Bloomberg.com

"With some observers saying that the ongoing financial crisis could be the worst since the Great Depression, the greatest living expert on that period is getting the chance to apply its economic lessons. . . . In Essays on the Great Depression . . . [Bernanke] notes that understanding that period is the holy grail of macroeconomics."--Spencer Jakab, Dow Jones Newswires --This text refers to an out of print or unavailable edition of this title.

From the Inside Flap

"This influential body of work is a significant contribution to our understanding the depth and persistence of the Great Depression.... This book will become a standard reference in the field of business cycle research."--Randall Kroszner, University of Chicago

"Bernanke's work has had a powerful impact on the economics profession, alerting macroeconomists to the advantages of historical analysis, and a number of important figures (James Hamilton, Steve Cecchetti, for example), inspired by his work, have followed him into the field. The nine essays form a remarkably coherent whole."--Barry Eichengreen, University of California, Berkeley, and author of Globalizing Capital: A History of the International Monetary System

"Collecting these essays together will provide a single source for students to find Bernanke's substantial contributions.... His papers demonstrate conclusively that the international view of the great depression has impressive explanatory power."--Peter Temin, Massachusetts Institute of Technology

--This text refers to an out of print or unavailable edition of this title.

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TO UNDERSTAND THE GREAT DEPRESSION is the Holy Grail of macro-economics. Read the first page
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15 of 16 people found the following review helpful
5.0 out of 5 stars What can I say? 30 Aug 2008
Format:Paperback|Verified Purchase
There is no way that I can criticize this book. Bernanke is the Governor of the Federal Reserve and I am not, which there are good reasons for.

However, this book is his PhD thesis on the Great Depression of 1929 - 1934. Hence it is written as such and is relatively theoretical. Personally, unless you have a university background in economics, I would skip this book.

If you are interested in economics, by all means do give it a go. The book is extremely interesting in as much as it attempts to explain the causes of the Great Depression. Most economists are taught, teach and write about equilibia. Bernanke has chosen to write about a disequilibrium, which is much more challenging and even more interesting.
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7 of 8 people found the following review helpful
3.0 out of 5 stars Not for the layman 21 April 2009
Format:Paperback|Verified Purchase
I bought this book in an attempt to balance up the various conspiracy theories currently surrounding the Federal Reserve. The reviewer above is quite right and although I'm fairly well read I found this to be extremely hard work. Unless you understand banker jargon you have to spend ages decoding each paragraph, sometimes each sentence, and in the end you aren't much wiser.
It's very hard for me to rate this book but I have only given it three stars because of sentences like the following one. 'Absent implausibly large differences in marginal spending propensities among the groups, it was suggested, pure redistributions should have no significant macro-economic effects.'
It took me about an hour to get that and I still don't think it is a correct sentence. There is no virtue in obscurity, unless of course you are a banker, as we now all realise.
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Amazon.com: 3.6 out of 5 stars  23 reviews
83 of 90 people found the following review helpful
5.0 out of 5 stars Collection of academic papers about the Great Depression 23 Feb 2006
By Jerry H. Tempelman - Published on Amazon.com
Format:Paperback
This is a collection of nine academic research papers written by Ben S. Bernanke during his two decades long academic career at Stanford University and at Princeton, where he ended up chairing the economics department. In these papers Bernanke, now chairman of the Federal Reserve System, along with several coauthors, examines the Great Depression, understanding of which he calls "the Holy Grail of macroeconomics" (p. 5).

Bernanke distinguishes financial theories and labor-market theories to explain what caused and prolonged the Great Depression. Financial explanations include monetary shocks, such as the collapse of the money supply that turned a run-of-the-mill recession into a once-in-a-lifetime depression. The collapse of the money supply was in turn caused by a clinging to the gold standard. Nonmonetary factors include banking panics, business failures, and a choking off of normal flows of credit (nonindexation of financial contracts, debt deflation).

Labor-market theories center around the phenomenon of so-called sticky wages: why did nominal wages fail to decline commensurately with prices (deflation) in the face of massive unemployment? This is clearly a factor behind the persistent unemployment during the Great Depression, but the reason has as of yet not been fully explained.

Bernanke's analysis is representative of the so-called New Keynesian view of macroeconomics, which frames different theories as supplementary rather than competing. The book contains one overview paper, while the remaining eight papers cover some of the component theories. Although the papers were written separately, as a collection they fit.

For the most part the papers are empirical investigations. Their technical nature means that the book may be a tough ride unless you are a professional macroeconomist. But it is instructive to see how Bernanke's understanding of the Great Depression has informed his economic views, as expressed recently in his famous November 2002 anti-deflation speech and in the fact that Bernanke, like his predecessor Alan Greenspan, does not favor targeting asset bubbles.
86 of 103 people found the following review helpful
5.0 out of 5 stars Rigorous and Authoritative. The Best Book on Great Depression Economics 23 Mar 2006
By Todd Carlsen - Published on Amazon.com
Format:Paperback|Verified Purchase
Bernanke rigorously explains the economics of the Great Depression. A massive monetary contraction (reduction in the money supply) was the cause of the Great Depression, in large part due to the mechanisms of the flawed version of the gold standard that was created following World War One. The massive banking collapse (due to weak regulation) further worsened the disaster as lending contracted sharply and the money supply severely contracted. Those were the two main causes.

Sticky wages and other factors contributed to the slow recovery. To a lesser extent, the Smoot-Hawley tarriff, which very sharply raised tariffs extremely high, contributed to the cause.

Bernanke shows decisively that the gold standard as it was designed in the 1920's was a disaster. The countries that abandoned the gold standard the soonest, such as Britain, were the ones that recovered the quickest. The countries that clung to the gold standard the longest, such as France, were the ones that suffered the depression the longest. The countries that were not on the gold standard at all - perhaps using the silver standard - avoided the Great Depression in the first place!

Due to the gold standard and other misguided judgements, the Federal Reserve constricted the money supply again and again. The gold standard caused a run on the gold supply, followed by further Fed tightening of the money supply to defend the currency, leading to widespread bank panics, which constricted the money supply further due to the sharp drop in bank loans and the loss of consumer confidence in the financial services industry, which was hardly regulated.

The economic crisis was made worse by the massive banking collapse. Thousands of undercapitalized banks went insolvent, and thousands of people lost their savings. Bank panics swept across the country. Other banks refused to make new loans for fear of loan default. The banking crisis resulted in a further contraction of the money supply. The banking industry completely collapsed at the end of Hoover's presidency.

Sticky wages also contributed to the depression, although not as much as Keynesians think, according to Bernanke. Hoover and FDR may have made this worse by trying to maintain and increase the spending power of workers, although the counter argument is that this increased worker spending power increased spending and demand. The book examines many other factors too numerous to list in this review. This is the best book on the economics of the Great Depression.

Once taking office in 1933, Franklin Roosevelt quickly removed America from the disastrous gold standard (which previous administrations would never have done), which stopped the strangling of the economy by the gold standard, and then FDR saved the collapsed banking industry, which stopped the strangling of the economy by the banking collapse. Recovery followed, the statistics clearly show. According to Bernanke, industrial output in America grew 5% PER QUARTER from 1933-37. Real wages grew substantially. Productivity grew substantially. Unemployment dropped.

The contraction was stopped in 1933 and economic growth began, so technically the depression ended in 1933. GDP grew over 50% in four years. This period of high growth was interrupted by a severe recession in 1937-38, which was followed by more high growth. According to Bernanke, "Quarterly growth rates for manufacturing employment, hours, and input in 1938-40 were 1.8, 2.8, and 4.9 percent, respectively." Despite the recovery, Bernanke says that the Great Depression still lasted several years because the economy took awhile to get back to where it was before the Great Depression.

I used a pencil to highlight the conclusions and summary points in this book because much of the information is academic and loaded with technical analysis. A massive amount of rigorous economic data is included, so only an economist will understand everything, but anyone can understand the conclusions. Bernanke inserts summary sentences so anyone can understand the conclusions if you wade through the technical analysis.

Highest recommendation.
10 of 10 people found the following review helpful
5.0 out of 5 stars Modern Perspective of the Great Depression 20 Mar 2010
By Rufus Burgess - Published on Amazon.com
Format:Paperback|Verified Purchase
Ben Bernanke's Essays on the Great Depression is a collection of 9 essays written in the 80's and 90's about the financial and labor markets during the 1930's. The essays are essentially a synthesis of prior work with greater mathematical rigor. For anyone wanting to know what caused the Great Depression, without reading an entire book, please read the first essay "The Macroeconomics of the Great Depression: A Comparative Approach." [...]

Bernanke's views regarding the Great Depression largely avoid the pre-80's debate over the 'money' hypothesis and 'spending' hypothesis. These views, argued by Friedman and Temin, used a quantitative analysis of the domestic markets and government policy. Instead, Bernanke assumes, and strongly supports, the view of Barry Eichengreen and Jeffery Sachs (1986) that the Gold Standard was the cause of the Great Depression. A sharp drop in the supply of money created a sharp drop in aggregate demand. Other factors, like sticky wages and prices, contributed to the Great Depression but were not the main factors. It was not until countries got off the Gold Standard that they were able to grow.

It is likely that the Federal Reserve or the Bank of England could have prevented a widespread depression between 1929-1930. However, after that period it remains doubtful whether either country could quell the Depression while maintaining the Gold Standard. It is important to note that the Great Depression was not caused by the USA alone (as commonly held before the 1980's). Bernanke is unable to explain what caused the Depression but can prove that it was not only the US (by inference the cause was international).

Due to the limited amount of statistics about the Great Depression Bernanke is forced to make MANY assumptions when building econometric models. At points his methodology becomes somewhat questionable (to his credit he often mentions this to the reader). Nevertheless, when Bernanke reaches his conclusions he is quite confident of the results (which is somewhat troubling...).

Overall: a great analysis of the Great Depression. In the academic circles, to my knowledge, Bernanke's conclusions remain the standard. (For some reason Macroeconomic textbooks seem to ignore both Beranke and Eichengreen's work -- I don't know why).
19 of 23 people found the following review helpful
3.0 out of 5 stars Trees counted, forest missed 8 Jan 2011
By Harry Eagar - Published on Amazon.com
Format:Paperback|Verified Purchase
This book is a wonderful exercise in counting trees but missing the forest.

I should state out front that I do not believe that complex systems subject to stochastic shocks can be modeled. Ben Bernanke and his collaborators at least do not attempt the economic equivalent of the climate doommongers' general circulation models, that foolishly imagine they can model an entire complex system. Each essay is an attempt to slice out an organ of economic activity and conduct a pathological examination of it.

Some essays are more persuasive than others.

The early papers, in which Bernanke tried to extend the proposals of Barry Eichengreen from just the USA to the industrialized world of the `30s, are more persuasive. Eichengreen proposed that the deflation was made infectious across borders by the gold standard.

Bernanke shows that leaving the gold standard allowed guiders of monetary policy to inflate currency, which, in turn, helped debtors to get back on their feet, put themselves back to work and hire others. But it was, obviously, far from a complete solution to the problem of persistent falling output.

At the time, Bernanke says, going off gold was criticized as a "beggar-thy-neighbor" policy, but we now see that inflation was a good thing. There is nothing new to the idea. Rexford Tugwell and the Columbia agricultural economists made the argument in the `20s, before the Depression, which they foresaw. Bernanke does not mention them.

What Bernanke and the macroeconometricians have done is quantify the Brain Trusters' insights. The quantification is only moderately impressive.

I studied economics through economic history, and when you read those papers you get a lively sense of how inadequate economic data are. Bernanke's elaborate equations are based on shaky inputs.

Furthermore, as many footnotes reveal, leaving out a parameter often has no "substantial" effect on the results. This is a frequent feature of climate modeling, too. It is often used to suggest that the results are "robust" to the parameters that do affect results, but it probably is more generally to be interpreted as a strong signal that the theory has substantial defects.

When you get the same outputs no matter what the inputs are, time to rethink the theory.

To their credit, Bernanke and his students do rethink the theory. When it comes to labor, though, not enough.

While the view that gold is bad for trade seems solidly established, Bernanke has it acting almost in a vacuum. In particular, you would never guess from these essays that there was a speculative bubble in the late `20s, or that it might have had something to do with the Depression. Of course, Bernanke's interest is in why the Depression persisted, not in how it began.

The second set of essays is much less impressive, in which Bernanke attempts to learn why wages were "sticky," that is, why real wages went up (for those who had any income at all). In theory, wages should have gone down until workers got so little that they would be worth hiring again. Bernanke shows, persuasively, that real wages did stay high during the Depression, even setting aside the fact that money bought more as currency deflated.

He spends much more time on the supply side: why didn't workers offer to work for less?; and much less on the demand side, why didn't employers want to hire? Sound familiar? Yes, it's the same problem today.

As Bernanke notes, large corporations entered the Depression with enough liquid assets that they were not directly affected by banking crises. They could have hired, just as today (January 2011), US corporations are sitting on $2 trillion in cash equivalents and could hire if they wanted to. High taxes, contrary to what Tea Partiers, Republicans and other economic illiterates will tell you, have nothing to do with it.

Then, as now, employers would not hire -- they would not even take free labor -- if they didn't have a potential supply of buyers.

Here is where Bernanke goes off the rails. It is clear why manufacturers didn't see big opportunities, then and now: The consuming class had been wiped out.

For American farmers -- who along with those closely connected to them in a business sense made up about two-fifths of the population -- the Great Depression began in 1922 and lasted until 1940. Tens of millions of them simply dropped out of the money economy. Milton Friedman and Anna Schwartz can't analyze them, because they didn't use money.

An excellent description of how a large family, with substantial assets (over a thousand acres of debt-free fat farmland in eastern Iowa), lived for two decades without spending money is available in "Little Heathens" by Mildred Kalish.

One of Bernanke's eight industries on which he runs his regressions was leather and tanning. It was an industry in decline, even before the Crash of `29, and behaves somewhat as an outlier in his equations. But you don't need equations to understand why leather firms didn't hire more, even as leather workers earned less. All you have to do is read Kalish's book and find out how she went barefoot, and multiply by 40 million.

"Essays on the Great Depression" has an extraordinarily large number of typographical errors. It was published in 2000 (the essays were first published as early as 1982) and is used as a textbook in many colleges. My copy is a ninth printing. I assume, from the uncorrected typos, that I am one of the few people to have actually read it.
5 of 5 people found the following review helpful
5.0 out of 5 stars Wonderfully informative book, but it's not for most people 6 Nov 2010
By Daniel - Published on Amazon.com
Format:Paperback
"Essays on the Great Depression" is not written for laypeople, even though you can find this in the store sharing a shelf with popular favorites like "Freakonomics." Even people with strong backgrounds in macroeconomics will find themselves rereading passages for clarity's sake. The book has a fair share of graphs, charts, and models. The models are by no means hard or esoteric, but they require a fair degree of familiarity with conventional macroeconomics and econometrics.

Bernanke's views on the Depression are very reminiscent of Eichengreen, Friedman, and Schwartz. He attributes the Great Depression to the gold standard and labor market conditions (namely, sticky wages) and spends the great majority of the book talking about that. He spends time talking about financial markets but it is not the focus. And he spends virtually no time discussing the New Deal, a common element in popular narratives of the Depression and its subsequent recovery. In fact, Bernanke notes that financial rehabilitation is arguably the "the only major New Deal program that successfully promoted economic recovery."

The monetary explanation of the Great Depression (focusing on the gold standard) has become popular in recent years and Bernanke's choice of citations is a testament to this fact; most of his sources are fairly recent, making this book a must-have for anyone who wants to keep up-to-date with developments in economic history.

This book is a must-have for economists, especially those interested in monetary policy, labor markets, and economic history. People without backgrounds in macroeconomics will find this book intimidating and even indecipherable at times.
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