ARTI

CLEREVI
EWEDbyFat
imaOl
anr
ewaj
u:

Cal
dwell
,J.
,&O’
Dri
scol
l
,T.
G.(
2007)
.WhatCausedt
heGr
eatDepr on?Soci
essi alEducat
ion,
71(
2),
70–74.

Thear ticl
ereviewedwaswr it
tenbyJeanCal dwellandTi mot hyG.O’ Dri
scollandi sbasedona
topicthatdisturbedbot heconomistsandhistori
ansf oralmost80y ears:“WhatCausedt he
GreatDepr ession? ”Theauthorsat
tempttor evi
seandanal ysethecausesandpr ogressi
onof
theGr eatDepr ession,pr
esenti
ngthedebatesoft hreepr ominentschool soft houghtont he
subjectandt her eaft
eraddtotheexisti
ngclaimst houghttobet hecausesoft heprolonged
economi cdownt urn.Majori
ssuesthearti
cledrivesatar ewhet hertheDepr essionwoul dhave
beenjustanot herl owpointinabusinesscycle,oratleasthav ebeenl esspr olongedand
devast ati
ng,i
ft hegov er
nmenthadi ncr
easedi t
sspendi ng;oriftheFeder alReser vehad
prevent edbankf ai
l
uresandmai nt
ainedalargermoneysuppl y
;oriftherehadbeennogol d
standar d.

Theaut horsbeganbycr eat

inganunder standingofadepr ession,otherwiseknownasa
recession.Itappearst hatthebel iefofmosteconomi st
sist hatarecessionoccur i
ngoncei na
whileis“ anormalpar tofwhati scommonl ycall
eda“ businesscycle”.”Thisisbecauseaftera
periodofeconomi cboom char act er
isedbyhi ghdemand, employment ,producti
vit
y,andtherest
thatfol
lows, apoint(i.e.thepoi ntofdi minishi
ngmar ginalutil
it
y)i
sr eachedwher ethedemand
fordurablegoodsf alls,andift hesal esofbi gfir
msf all
s,defini
tel
ypr ofi
tswillf
all
,product
ivi
ty
andmar ketsharepriceswoul dexper ienceadecl ine,etc.Thiswast hecasei nt heUSbuti twas
notenought omaket hedepr essionl astasl ongasi tdid.

I
n1928, whiledemandwasst i
l
l l
owbutsharepr i
ceswer eri
singagai n,theFederalReserv
e
Syst
em i ncreasedtheinterestrate.Asanaturalconsequence, thi
sact iondiscouragedbusiness
borr
owi ngandspendi ngandbr oughtaboutthedeclineinpr oducti
ont hatbegant hatsummer .
Thegov ernmentdi dn'
tthinkitwasenough; i
nterestrateswer eraisedagai nin1930and1931.
Theex planationsgiv
enf ortheincreasesi
nther ateofinterestwer ethatthegov ernmentfeared
astateofi nfl
ationandthatitwasact ingi
nadher encet othegoldst andardwhi chnecessi
tated
theavailabil
it
yofenoughgol dinthereser
vest obackupt hecurrency .

AfterWor l
dWarI ,
thatis,duri
ngthelatt
erhalfoftheni neteent
hcentury
, mostdeveloped
countriesincludingt heUShadadopt edthegoldst andar d,whi
chwasaser iesofmonet ar
yrules
thatest abl
ishedf i
xedr atesofexchangeamongnat ions.Thestandardrequir
edpartici
pat
ing
countriestoagr eet hatagivenamountofi t
scurrencywoul dbeexchangeableforanounceof
gold.Thi sprovidedasui tabl
emeansf orthegold-standar dcount
ri
estoexchanget heir
currencies.Meanwhi le,
notmuchmor egoldwasdi scov eredandthewor l
deconomywas
growing, soitseemedt hatnati
onswer esimplyexchangi nggold.

Thus,asnati
ons'
bankslostreser
vestoothercount
ri
esbecauseoftheoperationsofthegold
standar
d,t
hosebankshadt oreducethenumberofloanstheymade.Bankloanswer eoften
madet obusi
nessfir
ms,butsoonafter1933whichhadalr
eadyseenalongl engthofrecessi
on,
bankersst
art
edrefusi
ngloanrequestsfr
om busi
nessesexceptf
orthesafestandmost
conservat
ivel
oans.Thisrefusalwasal soowingt othefactt
hattheFederalReser
vewas
rel
uctanttosuppor
tthebanksi ft heyexperiencedanyt r
oubl
eregardl
esst hati
tsi
nacti
on
contr
adictedi
tspri
maryr ol
er ecogni zedbyCongr essin1913topreventbankfail
urecausedby
arunont hebanks.Businesseswer e,ther
efore,f
orcedtocutbackonpr oducti
on,l
ayoff
workersandreducesupplyor ders.

Fur t
her more, astheeconomybegant oi
mpr ovein1936, theFeder alReser veSystem raised
i
nt erestratesonl oansagai n,feari
ngi nf
lat
ion.Theincreasedr atesdi d,infact,t
empor aril
ystop
thegol dflowoutoft hecount ry,butalsodiscouragedbor rowing,leadingt omor ebusiness
fail
ur esandmor ejoblosses.I twasar oundthistimethatt henewl y-electedPresident,Roosevel
t,
abandonedt herulesoft hegol dst andar
d,increasi
nggov er nmentspendi ngandr endering
suppor ttot heunempl oyed, businessesandbanks.Heal sopr ohibit
edAmer icansf r
om owni ng
goldanddev aluedt heDollar.Theeconomysoonst art
edboomi ngagai nuntili
tfinall
yregained
stabilit
y.

Thearticl
egivesgoodinsightont hedetail
sofhappeni ngssur r
oundi ngtheGr eatDepr ession
butdoesnotcov eral
lthefacts.Forinstance, t
het woot hercausessuggest edbyt heaut hors
themselves,t
heSmoot -HawleyTar i
ffandt hepolicies' eff
ectstopr eventtheeconomy '
s
adjust
mentt ochange,werenotal sodiscussedbr oadl yenought oconv i
ncet her eaderthatt hey
alsocontri
butedsi
gnif
icantl
yt otheDepr ession.Mor eover,i
tmaybesai dt hattherewasno
singl
ecauser at
hervari
ousf actorscoll
ectivel
ycausedt heDepr essionandi tsdepth,because
theauthorswantstudentstoponderonhowev entscoul dhaveunf oldedgivent hatoneoft he
argumentsont hecausesandpr ogr
essionoft heGr eatDepr essionwasabsent .

Overall
,thearti
cleisav er
yenlighteningonewhi chanalysesi
mpor tantissuesrelatedtot he
Depressioninacl ear,
succintyetsuffici
ent
lyelaborat
emanner .Thear ti
cleisinfor
mat ivetothe
extentthatthereadersbecomeequi ppedwiththeneededzeal tofurtherresearchont he
subject
.Thepi ece,whent akenasawhol e,
isrelevant
,veryconvi
ncingi ntheory,and
emphasi sesont hewrongst epstakenbyv ari
ouspar t
iesduri
ngt hatperiod,butnev erpoint
sout
aconcret ewaytopr eventsuchacompl exproblem astheonediscussedf r
om happeni ngagain.