The Economic Crisis in Retrospect

The Economic Crisis in Retrospect

Explanations by Great Economists

Edited by G. Page West III and Robert M. Whaples

As the United States continues its slow recovery from the global financial crisis of 2008, politicians, policymakers and academics are increasingly turning to the lessons of history to gain insight into how we might address both current and future economic challenges. This volume offers contributions by eminent economists and historians, each commenting on the theories of a particular 20th century economist and the ways in which those theories apply to modern economic thought.

Chapter 5: Insights from the Great Depression

Peter Temin

Subjects: economics and finance, economic psychology, history of economic thought, international economics, political economy

Extract

Unlike most of the lectures in the Insights series, I am not going to focus on the insights of any particular economist, but there are three people – two of them economists – from whom we can gain important insights right from the start. John Maynard Keynes warned that ‘[p]ractical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist’. Karl Marx argued that ‘[h]istory repeats itself . . . first as tragedy, then as farce’. Tip O’Neill, the second-longest serving Speaker of the House of Representatives (1977–87) said ‘[a]ll politics is local’. With those thoughts in mind, let us examine today’s trying economic times in light of the Great Depression and, more broadly, the period between the two world wars. I will structure things by examining the causes of the Great Depression, followed by the causes of the recent financial crisis, then I will repeat this pattern in discussing the spread of the crises and the recoveries. The Treaty of Versailles, which ended World War I, was the product of continuing hostility – a continuation of the war by nonviolent means. The allied victors wanted restitution and imposed guilt and reparations on Germany. The Germans were resistant, calling the treaty a ‘stab in the back’ – like Siegfried getting stabbed in Wagner’s opera. Keynes opposed the treaty, writing The Economic Consequences of the Peace (1919), which was terrific polemic and makes good reading even today.

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