An International Disaster of Perverse Economic Policies by Thomas Hall - Book Report/Review Example

? A summary/ book report of “The Great Depression: An International Disaster of Perverse Economic Policies” by Thomas E. Hall and J. David Ferguson In their book “The Great Depression: An International Disaster of Perverse Economic Policies”, Hall and Ferguson made an effort to combine macroeconomic theories and social situation to provide a good understanding of the situation of world economy between the two World Wars. The topic of their book is not unique. In fact, there are a number of books on Great Depression. But, “The Great Depression: An International Disaster of Perverse Economic Policies” is different from others in its special mixture of Keynesian and monetarist views on the event of Great Depression. Event The book starts with a description of timeline of the events occurred during the period of great depression. This timeline takes into account all important political, economic as well as military incidents that took place between 1914 and 1941. The timeline presented all major incidents year-by-year. The book ends with an extensive glossary that discussed various technical terms, major writers and key players. The first chapter of the book provided a list of questions that would be answered throughout the book. The authors actually enlisted seven key questions in the opening chapter. These questions include various critical issues relating to the origin of the Great Depression, the scope and intensity of this worst economic slump, its duration and its gradual recovery. Throughout the book, the authors have mainly tried to find out whether this huge economic downturn was related to any previous economic boom, the factors that imposed a worldwide character to this longest downturn, the factors that were responsible for making this economic event so bad and long-lasting and the process of gradual recovery of the world economy. The list presented in the opening chapter, however, includes a few questions that deal with different types of secondary issues relating to the movements of banking system’s various working ratios during the period of depression. The authors also take into account the question relating to the simultaneous existence of inflation and unemployment at different parts during the period of Great Depression. The chapters at the middle have tried to give answers to the questions listed in opening chapter of the book. However, the sequencing of the topics in the chapters at the middle is not fully chronological. The last chapter of this book presents the questions of the first chapter once again and provides answers in summarized way corresponding to each question. In this book, it can be found that the authors’ perspective on the event of the longest economic downturn to a large extent is consistent with the vision that at the time of depression the economy was naturally stable, but the policies of the government were destabilizing. Ferguson and Hall attributed the critical situation of 1930-31 in which there had been a huge rise in the rate of unemployment to “a combination of economic ignorance, confusion, and incompetence of U. S. policymakers" (Hall and Ferguson p. 104). At the time of discussing the reasons behind Great Depression in this book, the authors put their stress more on explaining the factors that made the event so bad than on the factors that caused the initial downturn of 1930s from the prosperous 1920s. According to the authors, the depression of 1930s became so bad due to some terrible errors in the policies implemented by the government. Ferguson and Hall has characterized the event of Great Depression in this book as garden variety of recession. In one of the earlier chapters of this book, the authors have tried to examine the characteristics of the initial downfall of the economy. The authors have characterized the initial downturn of 1930s as the natural correction method of highly prosperous 1920s. The authors actually have attributed the primary economic downfall of 1930s to poor economic policies that resulted in excesses in 1920s. Ferguson and Hall have characterized the excessive growth of the US economy during 1921-29 as “quite remarkable” (Hall and Ferguson p.17). Here, the authors have suggested that technological change was the prime factor behind this kind of economic boom in USA. While discussing the factors responsible for initial downturn, the authors completely dismissed the view that deleterious income distribution was accountable for the downturn. They put their main focus on stock market performance during 1920s. They used Galbraith’s view against Beirman’s view. According to Beirman, stocks were not overvalued during 1920s. On the basis of these two views, Ferguson and Hall have come to the conclusion that "the jury is still out on whether the stock market advance of the late 1920s was due to speculative excess or to fundamentals" (Hall and Ferguson p. 29). However, in the last chapter, the authors have considered speculative excess of 1920s as the prime reason for the initial downturn of 1930s. Even in the earlier chapter, Ferguson and Hall declared that "restrictive monetary policy initiated by the Federal Reserve Board in response to the stock market boom was the cause of the initial economic slowdown that eventually turned into the Great Depression" (Hall and Ferguson p. 30). At the time of answering the question of what factors made the situation worse from just bad, the authors have held perverse Federal Reserve Policies as the main reason behind making the economic downturn of 1930s worse. The authors stated that as many as 11,000 banks experienced failures in that period. The authors have also stressed on 33 percent decline in the stock of money of USA. According to Ferguson and Hall, the fall in money stock and bank failures resulted in severe fall in consumer spending and investments that in turn resulted in huge unemployment. In this book, the authors stated that Federal Reserve’s vicious policies actually stemmed from unquestioning adherence of Federal Reserve to erroneous doctrine of real bills. At the time of accounting of the deleterious situation of 1930s, Ferguson and Hall held the reduction in money supply as the main factor behind making the situation worse. However, they considered the policy of maintaining wages at high rates as another infuriating factor. But, among all the factors, they put their prime attention on the contraction of money supply. Although they have mentioned high wage rate policy as a factor that aggravated the situation, they have not provided any elaborate explanation of it. As far as the chapter on economic recovery is concerned, the authors have made a huge shift in their focus from discussing how the country got into huge economic slump to discussing how the country got out of this depression. The authors made a huge change in their perspective as well. Ferguson and Hall have moved from monetarist view to embrace Keynesian view. In this chapter, holding a Keynesian view, the authors have held the main cause of high rate of unemployment and very low level of output as fall in aggregate demand. According to the authors, the solution should have been rooted in revamping aggregate demand of the economy. However, Ferguson and Hall have not extended their support to Keynesian regulatory approach; rather they have laid major emphasis on increased spending as the best solution of getting out of depression. (Hall and Ferguson pp. 122-125). However, in the final chapter, at the time of answering to the question of what factors contributed to the end of long-lasting economic slump, the authors included two Keynesian factors and one monetarists’ factor. According to Ferguson and Hall, very fast growth in money supply that started in 1938, huge increase in the sale of defense equipments to Great Britain in 1940 and the expenditure of US government on defense that started in 1940 as well were the main factors that contributed to the increase in aggregate demand of the economy and helping the economy to get out of severe long lasting depression. (Hall and Ferguson p. 163f) As far as the question of what factors contributed to making the Great Depression an international phenomenon, Ferguson and Hall have regarded the gold standard as the main factor that made the huge economic down turn originated in the US a global event. By favoring the gold standard, the authors of this book actually tried to condemn the sterilization policy of the US government. (Hall and Ferguson p. 32) In their book “The Great Depression: An International Disaster of Perverse Economic Policies”, Hall and Ferguson have been quite successful in providing a great understanding of the event of Great Depression. This book has the capacity to help in shifting the focal point of debate relating to Great Depression towards appropriate direction. The old debate relating to Great Depression was between those who think that government policies do not have any role in creating depression and those who think that depression do not just occur and government policies significantly contribute to the occurrence of a depression. This book has shifted the focus from this old debate and paved the way for a new debate that aims at finding out the particulars of the perverse government policies that have potential to create a long lasting downturn in an economic system. Reference: Hall, Thomas E. and Ferguson, J. David. The Great Depression: An International Disaster of Perverse Economic Policies. University of Michigan Press. 1998. Read More