Great Depression is a book written by Ben Bernanke and was published by the Princeton University Press during the year 2000. This book tackled the Great Depression that occurred during the 1930s, which was described by Bernanke in his preamble as a vertiginous economic decline (vii). Bernanke further added that the Great Depression was an incredibly dramatic episode which was also depicted as an era of stock market crashes, bread lines, bank runs and wild currency speculation, with the storm clouds of war gathering ominously in the background all the while (vii). The said issues raised by the Great Depression are still relevant today as cited by Bernanke (vii).
Bernanke described the Depression as informative basically for two principal reasons. The author first mentioned that the Great Depression was a very big event and second, it affected most of the world’s countries, hence, the period also provided a marvelous laboratory for studying the link between economic policies and institutions, at the same time, going through the details of economic performance (vii).
The book consists of nine essays, some of which are written with different coauthors that mainly discussed the macroeconomics of the Great Depression. Bernanke cited that the said essays were composed in a span of approximately two decades, which in his opinion, presented a largely coherent view of the causes and propagation of the Depression (viii). Each essay endeavors to divide the broad subject matter into a specific piece of economic activity to be able to carry out a clinical exploration of it. Upon reading the book, however, the author of this paper found some essays to be more compelling compared with the others.
The Great Depression of the 1930s gave birth to macroeconomics as a distinctive field of study—the events that transpired during this period continues to influence macroeconomists’ beliefs, policy recommendations and research agendas (Bernanke 5). In spite of this, the author deemed that finding an explanation for the worldwide economic collapse remains as an enthralling intellectual dilemma.
Bernanke gave emphasis that understanding the Great Depression if the Holy Grail of Macroeconomics, that is, it mandates understanding of the concept particularly with the economists who are attracted to the subject matter specifically in comprehending the scope of a significant turning point in world history (5). Bernanke also mentioned that in his viewpoint, the most vital latest innovation has been an alteration in the concentration of Depression research, from a conventional highlighting of incidents that transpired in the United States to a more relative means that scrutinizes the happenings in a number of countries concurrently (5). This expansion of focus is significant for two reasons: though the shocks to the domestic U.S. economy were a primary cause of both the American and world depressions, no account of the Great Depression would be complete without the analysis of the worldwide nature of the event, and of the channels through which deflationary forces proliferated among the different countries (Bernanke 5). Second, by successfully expanding the data set from one observation to twenty, thirty or more, the shift to a comparative perspective substantially improves people’s ability to identify the forces accountable for the world depression that had transpired (Bernanke 5). The author deemed that the improved identification brought about by a comparative approach is beneficial for the reason that it has the potential to bring the economists toward agreement on the causes of the Great Depression.
Bernanke proposed that to review the state of knowledge about the Great Depression, it is fitting to create the distinction between factors influencing aggregate demand and those involving aggregate supply; hence, he divided his lecture into two sections (6). Moreover, he argued that the factors that depressed aggregate demand around the world in 1930s are presently well understood, at least in broad terms in the first section. Specifically, the proof that monetary shocks performed a major role in the Great Contraction, and that these shocks were transmitted around the world primarily through the working of a gold standard, is quite convincing.
As what has been previously mentioned, Bernanke divided his discussion into two sections (6). Since section 1 was cited above, section 2 will then be tackled. Section 2 according to Bernanke stressed what individuals know about the impacts of falling money supplies and price levels on interwar economies (6). Bernanke considered the two principal channels of effect which comprises deflation-induced financial crisis and increases in real wages above market-clearing levels, brought about by the incomplete adjustment of nominal wages to price changes; empirical evidence drawn from a range of countries appear to offer foundation for both of these means (6). Bernanke also stressed that out of the two channels, the slow nominal-wage adjustment is exceptionally arduous to reconcile with the hypothesis of economic sagacity (6). Bernanke added that it is not possible to provide an inconsistent explanation of salaries and he also concluded that possessing several ideas on how the comparative means may aid individuals in stimulating advancement in such a complex subject matter (6).
During the Depression years, modifications in output and in the price level presented a robust optimistic link in almost every country, proposing a vital function for aggregate demand shocks (Bernanke 6). For many years, according to Bernanke, the main argument regarding the causes of the Great Depression in the United States was over the significance to be attributed to monetary elements (6-7). Furthermore, it was undoubtedly noticed that the money supply, output and prices all fell abruptly in the retrenchment and increased quickly in the recuperation; the complexity rest in setting up the underlying relations among the mentioned factors (Bernanke 7).
Bernanke revealed that setting aside the gold standard permitted guiders of monetary policy to inflate currency, which, in turn, aided debtors to get back on their feet, put themselves back to work and appoint others. But it was, apparently, distant from an absolute solution to the crisis of unrelenting falling output (6-16). For instance, in 1931 and subsequently, the great declines in the money-gold ratio that transpired around the world did not reflect anyone’s willfully preferred policy (Bernanke 11). A specifically destabilizing outcome of this process was the tendency of fears about the soundness of banks and expectations of exchange-rate devaluation to strengthen available means of support and tenets (Bernanke 11). Likewise, Bernanke also highlighted that the sharp declines during the 1930s had an interesting implication which is the multiple potential equilibrium values of the money supply (11).
At the time, Bernanke implied, going off gold was appraised as a “beggar-thy-neighbor” policy, but now individuals see that inflation was actually a good thing. There is nothing new to the idea. What Bernanke and the macroeconometricians have performed is to quantify the Brain Trusters’ perspectives. The quantification however is only fairly remarkable as deemed by the author of this paper.
In some essays the author was able to provide convincing arguments however at some essays; the author’s way of stressing his points fairly impressed me. All in all, I could say that the topic was pertinent to the economy at present, as he had emphasized the issues that happened before still continues to persist now. The book opened my eyes clearly to what factors contribute to the rise and decline in the global economy. I have also discerned that individuals particularly the economists and those in power should specifically address the concerns brought about by the author of the book to be able to unravel and elucidate the specific aspects that necessitate action to resolve current and probable financial crisis.
Bernanke, Ben. Essays on the Great Depression. West Sussex: Princeton University Press, 2000.