If there is any good to be found in the study of depressions, it is that economic depression can only occur after we have experienced better times from which to fall. In the normal course of our lives, economic conditions are usually quite good; normally the conditions are so good that we know a depression when we see one. There is now a glitch in our national economy; at the moment it has us wondering -- will we collapse into depression, or will we recover soon? Have we learned enough from past good times to right the ship? Or, perhaps more appropriately, have we learned enough from our earlier depressions so that we are able to correct our course?
Right now, so much of our learning (?) is focused on the Great Depression of the 1930s. There seems to be an ever-widening belief that only World War II enabled us to end the Great Depression. Must we gird for World War III to get us out of our current dilemma?
I think many, indeed the most vocal among us, have mis-learned the lessons of the Great Depression. And, I believe, we have failed to make the best use of the many lessons in economics available to us from the past. In particular, I believe we could have learned more than we have from Adam Smith of the late 18th century and from a host of his acolytes of the 19th century.
In the series of posts to follow I will attempt to portray our American economy as it emerged from its colonial beginnings into what most of us proudly believe to be the very greatest! I will reach back to Adam Smith whose inquiry into the nature and causes of the wealth of nations coincided (more or less) with the beginning of the Industrial Revolution in England and in Western Europe. In my mind, there was little to learn about depressions before that time. To have a depression, you must first have prosperity; and that prosperity must include the well being of everyone. May it be observed that the Industrial Revolution was first to bring about such prosperity for all; and thus we might mark that historical event as the genesis of depressions?
The end objective is to show that we do not need to fight World War III to return to prosperity; and that we really were having a pretty good recovery from the great Depression before WW II began. We should be so fortunate this time around. What we did in the 1930s was most impressive, and it was appreciated by a grateful nation.
Murray Rothbard was one of the more influential writers on the Great Depression; he would not agree with the assessment I gave above. Rothbard wrote this in 1963: "Most writers on the 1929 depression make the same grave mistake that plagues economic studies in general—the use of historical statistics to “test” the validity of economic theory."
Really now? We have the world's most extensive reservoir of empirical data; and we should not make use of it? Rothbard went one way; I will go another. When the Great Depression arrived, historical statistics were few and far between; and those that did exist were tucked away in remote library stacks or in file cabinets of public and private entities that had gathered the statistics in the first place. It was theory vs theory; there were no empirical proofs to be had. In the preface to his General Theory, Keynes wrote: "I cannot achieve my object of persuading economists to re-examine critically certain of their basic assumptions except by a highly abstract argument and also by much controversy." Why would Keynes make such a statement? The reality was that there was very little readily accessible historical data for use by writers on the subject of economics in Keynes' time. About all he, or anyone in his time, or earlier, could do was to offer his or her own theory.
My next post will present a statement from the Census Bureau that may help understand the problem. It was made in their preparing for publication the first edition of Historical Statistics of the United States.
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