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.