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Cliometrics and the Great Depression

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Handbook of Cliometrics

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Abstract

The Great Depression was the worst economic disaster in American history. There were plenty of factors that helped cause the Depression, but there is still ample disagreement in the large literature on the topic as to how much weight to give each cause. In the early 1930s, the Hoover administration and congress nearly doubled federal government outlays, offered a wide range of loans, and sought voluntary efforts to combat the Depression. The economy continued to slide, and increases in tax rates in 1932 contributed to the slide. The economy finally began to grow again in 1933 as Roosevelt and a Democratic Congress developed the New Deal, a large number of new regulatory and spending programs. The 1933 trough was so deep that unemployment rates remained high throughout the decade and real GDP per person did not reach its 1929 level again until around 1939 or 1940 despite rapid growth rates. A growing literature has been evaluating the impact of the New Deal programs, and the effects of several major programs are discussed here.

Price Fishback is the Thomas R. Brown Professor of Economics at the University of Arizona. I owe a great debt to the scholars, including numerous coauthors and students, who produced the valuable cliometric research that I survey here. Also special thanks are due to Michael Haupert and Claude Diebolt for their help in editing the chapter.

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Notes

  1. 1.

    See the new estimates developed by Fishback and Kollmann (2014).

  2. 2.

    Peter Temin (1976) uses bond ratings to show that investor confidence held up well for a couple of years after the crash. Christina Romer (1990) and Frederic Mishkin (1978) of modern economists assign the largest role to the stock crash. For other readily readable discussions of the causes of the Great Depression, see Smiley (2002) and Randall Parker’s (2002, 2007) volumes of incisive interviews with many of the leading economists who have written on the Depression.

  3. 3.

    For the consumption arguments, see Temin (1976) and Romer (1990). For negative productivity shocks, see the work of Ohanian (2001) and Cole et al. (2005) and sources cited there. For uncertainty, see Flacco and Parker (1992).

  4. 4.

    Friedman and Schwartz (1963) led the way in developing this monetarist argument. Bernanke (2000) provides additional arguments based on breakdowns in lending channels as the money supply shrunk. The argument was debated heavily in the 1970s and 1980s, and the debate is nicely summarized in Atack and Passell (1994). The monetarist analysis received support using dynamic general equilibrium analysis from a study by Bordo et al. (2000). Some challengers became more accepting of the argument when it was tied to reliance on the gold standard. Real business cycle economists tend to give less weight to the monetarist argument, but real business cycle economists Cole et al. (2005) assign as much as 33% of the blame for the Depression internationally to monetary shocks. See also Chari et al. (2002). For a summary of more recent works from the 1990s and 2000s, see Fishback (2010).

  5. 5.

    This is the essence of Friedman and Schwartz’s (1963) argument. See Christiano et al. (2003) for an analysis that emphasizes the role of monetary policy but not necessarily Friedman and Schwartz’ “too little, too late” hypothesis.

  6. 6.

    Wheelock (1991) uses econometric methods to show that the statistical relationships between Fed policy instruments and the economic factors on which policy makers focused did not change between the 1920s and early 1930s. Wheelock (1991) and Richardson and Troost (2009) talk about differences in policies at the regional Federal Reserve Banks. For discussions of the declines in asset quality and bank suspensions, see Calomiris and Mason (2003).

  7. 7.

    Irwin (2011) provides a detailed description of the political economy of the tariff and argues that the size of the tariff increase was not as large as many have stated.

  8. 8.

    Ohanian (2009) argues that Hoover’s jawboning was a major contributor to the Great Depression, arguing that employers followed the policies in part due to fears of the strength of unions. This is somewhat puzzling because union membership declined in the early 1930s, as seen in Table 2. See also Rose (2010) and Neumann et al. (2013) for more specifics about the Hoover policy.

  9. 9.

    Ellen McGrattan (2012) develops a model that shows the negative consequences of taxes on corporate income and dividends in the early 1930s.

  10. 10.

    See the Inaugural Address of Franklin Delano Roosevelt (1933), downloaded on 10 June 2010, from http://www2.bartleby.com/124/pres49.html.

  11. 11.

    One of the thorniest issues for studying unemployment rates in 1930s is whether to define as employed or unemployed the people on emergency work relief programs, like the Federal Emergency Relief Administration from 1933 through 1935 and the Works Progress Administration from 1935 through 1942. The relief workers worked for their relief payments at hourly wages that were roughly half to two-thirds of the norm paid by other government projects. Since 1940, the unemployment statistics have treated people receiving unemployment benefits of similar size as unemployed and they have no work requirement. This suggests to me that the New Deal relief workers were worse off than modern people on unemployment insurance because they received the same benefits as the modern people but had to work for them. Thus, I believe the relief workers should be considered unemployed in comparison with modern unemployment rates. See Darby (1976) and Neumann et al. (2010) for more discussion of this issue.

  12. 12.

    For a description of the National Bank Holiday, see Mason (2001). For discussions of the reversal of policy to fight deflation, see Temin and Wigmore (1990) and Eggertsson (2008).

  13. 13.

    Eichengreen (1992), Temin (1989), Temin and Wigmore (1990), and Kindleberger (1986) talk extensively about the move off of the gold standard.

  14. 14.

    This description is based on Friedman and Schwartz (1963). For a view that puts less emphasis on the Fed’s role, see Romer (1992). Calomiris et al. (2011) use data for individual banks to challenge the idea that the reserve requirement rise had a strong impact on the 1937–1938 recession. For a dynamic model of the 1937–1938 recession, see Eggertsson and Pugsley (2006).

  15. 15.

    See Brown (1956) and Peppers (1973) for more sophisticated analysis showing that the New Deal did not follow the Keynesian policy. Barber (1996) describes the economic thinking of many of the New Deal advisors.

  16. 16.

    For historical comparisons of the impacts of tariff rates, see Irwin (1998). Kindleberger (1986, p. 170) and Atack and Passell (1994, p. 602) describe the international trade developments in the 1930s.

  17. 17.

    The federal government had long provided benefits and disability payments for its administrative employees, soldiers, and veterans.

  18. 18.

    See Wallis and Benjamin (1981), Benjamin and Mathews (1992), Fleck (1999), Fishback (2015), Fishback et al. (2007), Fishback et al. (2005, 2006), Fishback and Kachanovskaya (2015), Johnson et al. (2010), Neumann et al. (2010), and Garrett and Wheelock (2006). For a dataset with federal spending by state in the 1930s, see Fishback (2015). For datasets at the state, city, and county level, see Price Fishback’s website at the University of Arizona Economics Department http://econ.arizona.edu/faculty/fishback.asp. For a general survey, see Fishback and Wallis (2013).

  19. 19.

    See Costa (1999), Stoian and Fishback (2010), Parsons (1991) Balan-Cohen (2009), and Friedberg (1999).

  20. 20.

    See Fishback et al. (2005, 2006), Depew et al. (2013), Fishback et al. (2003), and Fishback and Kachanovskaya (2015).

  21. 21.

    For detailed accounts of the banking regulations, see Mitchener and Richardson (2013), Calomiris (2010), and Mason and Mitchener (2010).

  22. 22.

    For analysis of the HOLC, see Courtemanche and Snowden (2011), Fishback et al. (2011, 2013), Harriss (1951), and Rose (2011).

  23. 23.

    See Temin and Wigmore (1990) and Eggertsson (2008, 2012) for this argument.

  24. 24.

    Bellush (1975) offers a good administrative history of the NRA. Cole and Ohanian (2004) find that the high-wage policies and retrenchment in antitrust action associated with the NRA and the Roosevelt administration’s post-NRA policies significantly slowed the recovery. Alexander (1997), Taylor (2007), and Vickers and Ziebarth (2014) discuss the problems the industries had in establishing the codes of “fair” competition and the reasons why businesses did not press for a new NRA when it was declared unconstitutional. Jason Taylor (2011) studied the impact of the NRA and the President’s Reemployment Agreement on hourly wages, weekly wages, weekly hours, total hours employed, and industry output. Alexander and Libecap (2000) describe the different attitudes toward replacing the NRA and the AAA.

  25. 25.

    For an economic overview of the changes in union policy, see Freeman (1998).

  26. 26.

    For additional discussions of more New Deal programs and long-run changes relative to the past and present, see Fishback and Wallis (2013).

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Authors and Affiliations

  1. Economics Department, University of Arizona, Tucson, AZ, USA

    Price Fishback

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Editors and Affiliations

  1. BETA/CNRS, University of Strasbourg, Institute for Advanced Study, Strasbourg, France

    Claude Diebolt

  2. University of Wisconsin – La Crosse, La Crosse, WI, USA

    Michael Haupert

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Fishback, P. (2019). Cliometrics and the Great Depression. In: Diebolt, C., Haupert, M. (eds) Handbook of Cliometrics. Springer, Cham. https://doi.org/10.1007/978-3-030-00181-0_6

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