The Depression of 1921?

The “Depression of 1921” has been receiving a lot of attention recently (Krugman, Selgin, Murphy, and Sumner)  mostly in response to James Grant’s The Forgotten Depression:1921: The Crash That Cured Itself. The argument of the book is that the economy recovered more quickly because neither the federal government nor the Federal Reserve attempted to pursue activist policies. I am skeptical that 1921 is a useful case to generalize from.

It was a post war recession, much like the one after World War II. Most business cycle movements have been associated with busts after periods of credit expansion (see the recent work of Alan Taylor et al). In those cases it was households and businesses that borrowed and spent during the boom. Consequently, when the bust comes, businesses and consumers struggle to repay their debts. Businesses fail and consumers default. Even consumers who do not go bankrupt reduce their current spending to avoid default (see Martha Olney). As businesses and households default the value of bank assets fall and banks fail. The bank failures result in decreases in the money supply (Friedman and Schwartz) and disintermediation (Bernanke). In other words, it creates a real mess when people take on excessive amounts of debt, especially when they use that debt to bid up the prices of assets like stocks or real estate.

In terms of increases in output and prices, war time booms look similar to credit fueled booms, but the government is the one borrowing and spending. The end of the boom does not necessarily lead to a financial crisis or reductions in consumption and investment. Granted government borrowing can also create a mess, particulalry if people begin to doubt its willingness or ability to pay, but that hasn't really been an issue for the U.S. 

I also have a problem with calling this a depression. I know that there is no universally accepted definition of the term depression. And I know that Grant is not the first to refer to this episode as a depression. But we completely lose any distinction between a recession and a depression if this was a depression. Neither the length nor the severity of the decline in real GDP warrant the term depression.

Business History Conference

The Business History Conference launched its new website yesterday. In addition to the usual stuff about meetings it has an extensive list of links for research in business history and syllabi and other resources for teaching business history and business history related courses.

Claudia Goldin in Saudi Arabia

The New York Times reports on how the economic historian Claudia Goldin tries to help Saudi women enter the labor force while following the prime directive (see paragraph 5).

The Fall and Rise of Economic History

Jeremy Adelman and Jonathan Levy describe "The Fall and Rise of Economic History" in the Chronicle of Higher Education

 

I found this essay particularly interesting because both Jeremy Adelman and I studied economic history at the LSE in 1984-85. If I remember correctly, we were the first cohort to do a new M.Sc. program focusing on Third World economic history. He went on to get his PhD. In history (Oxford); I went on to get a Ph. D. in economics (Washington University).   

I remember a seminar where Jeremy presented the work he was doing on Argentina. The first person to speak was one of the older professors in the department, very much a traditional historian. He said, “That is political history. This is a seminar in economic history.” He then leaned back, laced his fingers over his stomach, and looked around the room, smiling as if he had just said all that needed to  be said.  I know he did not speak for all the professors present, but it was still a very discouraging moment. Like Jeremy, I was interested in economic questions but didn’t believe it was possible to leave politics and ideology out of the answer. I had also just started to read Douglass North’s work on institutions and ideology and thought it might provide the way forward. I decided to pursue a degree in economics. Since then, I think economists (for example, North, Wallis, McCloskey, Mokyr) have continued to make progress in reintegrating politics, the law, and culture into the study of economic history.    

I have, on the other hand, been very disappointed in the “new history of capitalism” that has arisen in history departments. I first thought that this might be the moment for a much needed reunion of economists and historians, but it quickly became clear that that was not what the new history of capitalism was about. Instead of confronting the work of economists directly it is generally ignored or dismissed. People throw around terms like homo economicus, suggesting that economists all think that people care only about maximizing their material wealth and that they do so with perfect information. They seem to believe that the recent financial crisis has undermined the credibility of economic theory because things did not work out well, while a student in any decent principles of economics class could show you the prisoners’ dilemma and explain to you that economic models do not all conclude that everything will work out for the best.  The quality of the historical research is secondary to the author’s stance against capitalism (which is not defined) and economics.

 

I still hope that economic history will regain a prominent position in both economics and history and that economists and historians will be able to move forward together.

 

Who is shocked by this?

The Economist reports that the performance of state owned enterprises has been shockingly bad.

If there is state capitialism, is there private enterprise socialism?

Jeffrey Beall Explains Why People Should Avoid "journals" published by the Clute Institute

http://scholarlyoa.com/2014/11/27/why-researchers-should-avoid-the-clute-institute/

"In conclusion, I recommend that honest scholars seek out a better publisher for disseminating their research than the Clute Institute. This publisher, with its dubious claim to be an institute, is little more than a scholarly vanity press — it’s essentially a money press — and publishing papers in this publisher’s journals may hurt authors in the long run. By this I mean that for any researcher who publishes a paper in a Clute Institute journal, that paper will be in the company of other papers with highly questionable citation and authorship practices and may be damaged by association."

What Was Funny?

Huffington reports on how the Board of Visitors of UVA deal with the problem of sexual asault on campus:

"Later, however, as the meeting neared its third hour, board member Edward D. Miller interrupted to note the Visitors were laughing too much for a session dedicated to such a serious issue. Miller commented through a conference call, as he was not able to be there in person. His comment was quietly applauded by public audience members."

Ice Fountain at Mary Washington

Courtesy of Lauren Castellano