The world in depression, 1929-1939,

History of the World Economy in the Twentieth Century #4

by Charles P. Kindleberger

"The World in Depression is the best book on the subject, and the subject, in turn, is the economically decisive decade of the century so far."--John Kenneth Galbraith

Genres: Economics, History, Nonfiction, Finance, Business, International Relations, European History

336 pages, Hardcover

First published January 1, 1975

About the author

Economic historian. More at Wikipedia

Reviews

[AC · Rating 5 out of 5]

(I have not in fact finished this book, but do not expect to return to it anytime soon.)

The book is not as long (300 pgs) or as difficult (though it is dense enough) as I had remembered -- which, I suppose, says that I have learned a lot in the interval --. It is an outstanding book: lucid, intelligent, honest to a fault... and has none of the turgid academese usually found in books like this.

Kindleberger's discussion covers the whole of the Great Depression -- starting with the recovery after WWI, and running right up to the rearmament in 1938/1939. As I have not yet read far, I will restrict myself to just a couple of comments.

First -- Kindleberger sees the Depression not as a unitary phenomenon, but as a series of discrete phenomena -- inter-connected, to be sure -- but each with distinct aetiologies and implications. He cites (with approval) Hoover's view (Memoirs, III.38) that there were five distinct phases:
[1:] The Crash and its aftermath (Oct. 1929-April 1931);
[2.:] the "quake from Europe", i.e., the defaulting of Germany and the failure of the Credit-Anstalt in
Austria (April-July, 1931);
[3.:] the Collapse of Sterling (August-December 1931);
[4.:] the bottoming process (Dec. 1931-July 1932, when the Dow bottomed);
[5.:] the electoral campaign in the United States and the final 'flush', I mean..., the banker's panic (in
the U.S.) of March 1933 -- Stocks in the U.S. did not make a new low.

Most of the people writing now on the Depression (bloggers, for example) simply refer to three phases or crises: the Crash (1929-1930); the European financial crisis of 1931; the U.S. banking crisis of 1933.

In general, the more I read about Herbert Hoover, the more admiration I have for him -- he was a remarkable man -- but was man who simply could not see sufficiently beyond the circle of orthodoxy to deal with the economic cataclysm. Roosevelt, though he knew little about economics, had an element of genius…, and could.

Secondly, Kindleberger's view of the events of 1931 -- which was the central crisis - are very close to what we are getting from Martin Wolf now on the current situation with Germany and Greece. K.'s view (like Wolf's) is that policy makers blundered by treating as a zero-sum game (beggar-thy-neighbor) what is not, in fact, a zero-sum game (international monetary and financial and trade relations). Thus, the disaster of that year was due to policy blunders -- that is, to intellectual errors -- not to an (unleashed) force of nature (Greenspan). The Crash of 1929 is somewhat different, of course -- as there it is a question of a debt-bubble that had been allowed to form.
(see http://www.ft.com/comment/columnists/... esp. March 18th & 23rd)

Third, and finally -- K. supports the contention I've been making that reparations were NOT the cause of hyperinflation or of the Depression -- since, as I have said, Germany barely paid any reparations. So I can add Kindleberger to the following list: Bresciani-Turroni, Jens Parssons, MacGregor Knox.

However, Kindleberger does argue -- and Lords of Finance brings out this point, as well -- that the issue of reparations and war debts (with which it was so intimately bound) so distorted the questions of the day, political, currency, trade, etc. -- that while it in no way 'caused' the Depression, it must constantly be borne in mind.

An interesting example he gives: Part of the Dawes plan of 1924 was to float Germany an 800 million (Renten) Mark loan -- to help pay for the reparations they owed to France (who owed money to Great Britain who owed money to Washington that the Americans would not forgive....) - of which $110 million was done in NY. The loan was oversubscribed 10 to 1 -- which set off, in NY, a mania of foreign lending -- not only to Germany, but to Latin America (the so-called 'Dance of the Millions'….). Ultimately, by 1930, the default rate had gone from 18% to 50%… The Americans, who had just come upon the global financial stage -- had all the enthusiasm and hybris of youth and new found (financial) power, but none of the experience nor restraint needed to avoid the speculative bubble that followed. Thus, the impact of reparations was very real, but it was indirect.





{{I think it's time once again for me to start this long (and difficult) book. Events in the euro are showing how easily things can unravel... because of human error and through violent moves in currency blocks. It was Europe, of course, in 1931 that caused the second leg down in the Great Depression -- as Germany began to fail -- and which caused a contagion.... leading to the failure of the Credit-Antstalt in Austria.

I doubt very much that Merkel will allow things to get to that point -- but you never know... and that in itself is troubling, as it shows how much is riding -- not on vast historical forces -- but on the decisions of mere (and fallible) mortals... on mere wisps...

http://www.creditwritedowns.com/2010/...

These are two really quite remarkable articles....

http://online.wsj.com/article/SB10001...

By BRIAN BLACKSTONE

European Central Bank President Jean-Claude Trichet jumped into the growing fray over Greece's debt crisis, suggesting the country could receive loans from its euro-zone partners under certain conditions—a position that appears to put him at odds with Germany, which is pushing for the International Monetary Fund to play a central role in any rescue.


JEAN-CLAUDE TRICHET

Mr. Trichet's comments, in testimony Monday to the European Parliament, came as doubts over Europe's commitment to helping Greece weighed on the euro and drove up Greece's borrowing costs. He also took aim at the deepening divisions between European governments and institutions ahead of this week's European Union summit—effectively telling them to get their stories straight on Greece and to stick to them.

"Verbal discipline is of utmost importance," he said. "I would prefer that different institutions think first and then express their opinions as clearly as possible."

Loans to Greece from other euro-zone nations are a possibility, Mr. Trichet suggested, as long as they don't "mix up" a transfer or subsidy that would give Athens financing advantages. "We can only be talking about a loan without any sort of subsidy elements. That needs to be clear," Mr. Trichet said. As a precondition for such a loan, the "extraordinary situation" has to threaten the euro zone as a whole, and not just an individual country, he said.

Mr. Trichet has strongly rejected an IMF role beyond technical assistance.

Related Reading

Tensions Cause Wild Ride for Euro
Uncertainties Pressure Greek Bonds
Bundesbank Warns on Greek IMF Aid
WSJ.com/GreekDebt: Analysis, video, more
Related Video

French Minister Lagarde on Greece (03/12/10)
Greece On The Brink: Civil Servants Fight Back (03/11/10)
AM Report: Cracking Down on Swaps (03/10/10)
German Chancellor Says Greece Doesn't Need Aid (03/06/10)
Many euro members fear that IMF involvement in a potential bailout would undermine confidence in the single currency. But in Germany, the euro zone's largest economy, the government faces strong domestic resistance from voters and lawmakers to footing a large bill for bailouts of euro members that have pursued loose spending policies in recent years.

Germany on Monday continued to distance itself from the ECB and Germany's own national central bank, the Bundesbank, which also argues against IMF financial assistance to Greece.

Journal Community


"I say this very explicitly, in my opinion [help from:] the IMF is a subject that we need to consider and that we must continue to discuss," German Chancellor Angela Merkel said. Ms. Merkel repeated that European Union leaders won't decide on an aid package for Greece at their summit in Brussels on Thursday and Friday.

Meanwhile, European Commission President Jose Manuel Barroso said in Monday's editions of Germany's Handelsblatt newspaper that he wants EU leaders to agree on a system of coordinated credit for Greece at this week's summit.

Euro-zone governments will intervene to help Greece only as a last resort if the bloc's stability is threatened, Ms. Merkel's spokesman Ulrich Wilhelm said. In that scenario Germany would be open to financial assistance by the IMF, he said, hinting at a potential joint aid package involving the IMF and euro-zone governments.

European policy makers' divisions put pressure on the euro Monday. It briefly sank to a three-week low of less than $1.35 after Greece's deputy prime minister Theodore Pangalos said the euro would "have no meaning" if Athens is left unprotected in the face of market speculation against its government debt. It later recovered as higher U.S. equities spurred greater risk-taking by investors. Still, the risk premium Greece must pay on its debt rose, with the 10-year bond yield spread over safer German bonds rising about 0.10 percentage point to 3.35 points. The cost of insuring Greek sovereign debt against default using credit-default swaps also rose.

View Full Image

European Pressphoto Agency
European Central Bank President Jean-Claude Trichet testifies to the European Parliament in Brussels.

Calling speculation against the Greek bond market a "despicable" game, Mr. Pangalos said the German government was implicitly allowing German banks to attack a fellow euro-zone member. "Some people in Germany are making money," he said.

Greece's central bank added to the pressure, saying the nation's gross domestic product will contract by 2% this year, a bigger drop than the finance ministry expects. A deeper-than-expected recession would make it even harder to achieve the ambitious deficit reduction Athens has promised. Greece's deficit was 12.9% of GDP last year, the central bank said, even higher than the government's previous 12.7% estimate. The country faces a "vicious circle" as it tries to repair its finances, as budget cuts will compound the recession, the central bank said.

Mr. Trichet offered some verbal support to Greece, calling its steps to rein in its deficit "courageous" and saying they should bring down borrowing costs. He also strongly hinted that its debt would still be acceptable as collateral for cheap ECB loans even if credit ratings agencies cut Greece's rating, provided Greece reduces its deficit as promised. Under current relaxed rules introduced during the global financial crisis, Greek debt's eligibility as collateral at the ECB isn't in danger. But under pre-crisis rules to be reinstated next year, further credit-ratings downgrades could render Greek debt ineligible.

Mr. Trichet said he expects financial markets to "progressively realize" that Greece's fiscal measures are "convincing," and "if it would appear that this working assumption is too optimistic...then we will look at the situation."

Mr. Trichet, one of the architects of Europe's common currency, also moved to quell talk that countries could face expulsion from the euro zone, an idea he has repeatedly called "absurd."

"The euro area is not a la carte," Mr. Trichet said. "We share a common destiny."

—Nina Koeppen and Geoffrey T. Smith contributed to this article
Write to Brian Blackstone at brian.blackstone@ dowjones.com

and...
http://www.spiegel.de/international/g...
(though one has to bracket for the obvious bias in this article)

[Marius Ghincea · Rating 5 out of 5]

Kindleberger provides an alternative account of the Great Depression. If for Samuelson the depression was a random event without any underlying causes and for Friedman, it was due only to the mistakes of the FED on monetary policy, Kindleberger argues that the depression was mainly due to the lack of political and fiscal leadership, at home and abroad. This lack of leadership, a global hegemon, amplified the recession in a global economic vortex combining various vectors, including the collapse of banks that ended the flow of money in agriculture, industry, to the housing bubble in the US South and the perpetual economic debacle in Europe during the 1920s. It is a holistic perspective on the causes of the Great depression that puts at its core the importance of political leadership and says that the depression was not an American affair, but a global one. It refutes both Samuelson's and Friedman's accounts of the main causes of the depression and validates, in part, the Keynesian causal finding that links the depression to deflation and lack of demand.

[Doug · Rating 2 out of 5]

Wow! This was not an easy read. It was full of difficult economic theory and charts. Kindleberger's theory was that it was WWI that set the stage for the Great Depression with fundamentally unsound economic policies, primarily from the victors. I wouldn't recommend this to anyone but a grad student in economics. This was a slog and a half. Took me a month to read 305 pages.

[Blaine]

I unfortunately did not understand enough about the mechanics of international fund flows or trade to judge the quality of the analysis. After a (valiant?) effort for the first hundred pages, I skimmed the rest and read the final summary chapter.

It was interesting however to read how the lack of a leading power willing to play a role in stabilising the economy after a number of shocks was considered to be the cause of the depth of the depression. There would have been a slump in any case. Factors such as the excessive reparations demanded of Germany, the boom of the late twenties followed by a market crash, tariffs and other import barriers led to a significant decline in production and trade. However, had one of the leading economies intervened in the way the US has done several times since the end of the Second World War, or as the UK had done before the First World War, the slump might have been ameliorated. Instead, the relative position of the UK had declined after the First World War, rendering it unable to play its former role, and the US had kept itself apart from international institutions and pursued its own nationalistic trade and financial policies.

The parallels to the present are obvious.

[Ararat Gocmen · Rating 4 out of 5]

One of the better and more complete accounts of the Great Depression that I’ve ever read. Its focus is certainly more international than it is domestic, but it also contains concise but rich accounts of the domestic context of each of the large economies (namely, the U.S., the U.K., France, and Germany). When narrating the details of international economic negotiations, Kindleberger’s style is a bit too reminiscent of old-school diplomatic history for my tastes. He could’ve also integrated more of his theoretical insights and analytical claims from Chapters 1 and 14 about the most important causes of the global depression into the detailed chronological account of the key events that he offers in Chapters 2-13. Nevertheless, it makes for a fascinating read in light of current events, especially given his emphasis on the role played by trade wars and his central claim that “the 1929 depression was so wide, so deep and so long because the international economic system was rendered unstable by British inability and United States unwillingness to assume responsibility for stabilizing it” (pp. 291-292).

[Nanto]

Sebuah kalimat yang menegaskan perlunya dunia akan hegemon, one hegemon, dikutip oleh para Sarjana HI yang mengemukakan Hegemonic Stability Theory dari buku ini.

Namun, Kindleberger sendiri dalam sebuah artikel yang dimuat di sebuah jurnal (nanti saya cari ke CSIS kalo sempat), mengkritik Keohane salah satunya yang dianggapnya menyalahartikan maksud yang ingin disampaikan dalam kalimat yang banyak dikutip itu.

Artikel itu sungguh menarik alurnya. Dalam sebuah artikel ilmiah, Kindleberger menggunakan teknik yang biasanya ada di novel detektif. Ia menempatkan semacam "isyarat" atau deskripsi diawal yang digunakan untuk mendukung kritik dia kepada Keohane. Alur yang mengharuskan pembacanya konsentrasi di awal tulisan kalau tidak mau kehilangan konsentrasi atas apa simpulan dia atas kritiknya untuk Keohane.

Bukunya sendiri belum saya baca. Cuma berharap menemukannya, dan dapat membacanya nanti. Isinya tentang kondisi ekonomi dunia di jaman meleset dulu. Sesudah jaman normal, kalau kata orang tua dulu.

[Rick Sabatini · Rating 4 out of 5]

Very heady explanation of multiple facets of the Great Depression. Focuses a lot on currency devaluations throughout Europe and commodity prices. Somewhat technical but still very informative. Some political context as well adds a lot of color to the economic situation of the times. Very interesting and informative. Gives a ton of insight into why the world is as financialized as it is right now.

[Wanda · Rating 4 out of 5]

Gotta be the best book for understanding what *that* was all about. Clearly written, precise, not laden with academic bafflegab.
Take-away lesson: "Great depressions recur. Often no one in authority has any idea of what to do."
Gee, ya think?

[Tobias · Rating 4 out of 5]

Clear, though at times dense, account of the international origins of the Great Depression, i.e. the lack of an international lender of last resort.

[Eric Bottorff · Rating 5 out of 5]

Not just one of the best books on the Great Depression, but easily one of the best works of economic history I've ever read.

[Jonathan Garvey · Rating 4 out of 5]

Dry and thorough. Kindleberger is legendary for his accounts of economic history.

[Robert Morris · Rating 4 out of 5]

A landmark for a reason. This attempt by Charles Kindleberger to describe and explain the Great Depression is about 40 years old, but it hasn't lost any of its explanatory power. Part of what keeps the book relevant is the impossibility of ever coming to any real consensus on the causes of the Great Depression. Each generation gravitates to new explanations and interpretations, but this detailed report from Kindleberger, who was working as an economist during the events in question, remains useful. Love it or loathe it, you've got to reckon with it.

Kindleberger's account is rooted in the time he wrote it, decades after the actual experience. Milton Friedman, and his monetarist explanations, loom large. Kindleberger takes pain to refute these explanation that were so prominent in the 1980s. The account moves chronologically, taking pains to explain all the arguments and events that fit under each of the large components of the economic collapse. Kindleberger has a reputation for being less numbers obsessed than his contemporaries and successors in the economics field. I think that may be more on the theoretical level, this book is full of charts, and he backs up his assertions with voluminous data. Honestly I found it all rather intimidating.

Kindleberger's title refers to "the world" in depression, and he wasn't kidding. He attempts to include figures and analysis of what was happening throughout the world system as the market crashed in the United States, and makes a compelling case that that the US crash may not be as significant as is traditionally asserted. His top-level explanation is that the US refusal to step into the economy-controlling role that the British held before the first world war led to the spiraling collapse into economic depression. He identifies the "loans-for-reparations" cycle of the Dawes & Young plans as contributing to the instability of the world economy in the 1920s. I enjoy these interpretations, as they match my own.

But Kindleberger is very careful in his analysis, and quite open to the idea that other interpretations may be preferable. He's most concerned with tracking the unraveling and recovery of the world economy as a historian. In service to that goal, he provides such a wealth of information that it sometimes becomes a bit mind-numbing. The narrative is often leavened by his amusing takes, including his somewhat caustic view of FDR and his treasury secretary, who he sees as succeeding despite their lack of understanding of what was going on.

All in all, it's a great document of one of one of the most important things that has ever happened to humanity, and our attempts to understand the event as of the 1980s. I wish Kindleberger was still around to revise the text. He's a great guide.

[Morgan · Rating 3 out of 5]

Note: this book was not written for the layman. And while I can't pretend to have understood most of the technical economic systems/high finance lingo, I still found The World in Depression fascinating. I do like "big picture" stuff. Particularly, some of the historical sweeping policy decisions such as the Soviet Union allowing over a million of its citizens to starve to death so as to deflate the price of wheat on the world market. Um, why would that be a good idea? Heck, I didn't even bother with a dictionary it was so far from my field, yet strangely it was well worth sticking to reading sentence after paragraph after chapter I couldn't fathom (I mean, what is "counter-cyclical lending?") to gather enough to get what I already suspected, i.e. there are no adults in the room. Leaders of nations, large and small, then or now, have no more of a handle on the global financial implications of what they are doing when they do the inscrutable things they do, like levy tariffs or demand war reparations, than I do. And, they are so ignorant, e.g. Hoover, Roosevelt, that they don't know that they don't know so they won't listen to anyone who might have even a remote chance of helping them make policy decisions benefitting the global economic system. That is if they could pick between the competing theories and philosophies to do so. Shooting themselves and everyone else in the foot is the international standard. The answer to the question "who's on first" is "nobody." Surprised? Fifty years ago when Kindleberger wrote this treatise, he was begging some nation or international organization to take responsibility for keeping the system up and running. My guess is he still would be.

[A · Rating 3 out of 5]

Ok- more like i wanted to read it. I read about 100 pages, but gave it up as i really wasn't getting much out of it. Loaded with the backstory of German debt and money supply and competing theories of Friedman / Keynes .. it is constantly making hard points... that are a bit too subtle for me. So... i am sure it is great, but in the end... too much for me ... alas. I actually bought this book since library didn't have it and i opted not to ILL it- it was highly recommended in some review i read. o well.

[Richard Marney · Rating 5 out of 5]

A classic and a must read for students of the era.

[Scott · Rating 2 out of 5]

Dry, slow, detailed. Pedantic, scholarly. If your are crazy for the depression, this isn't terrible. But not written for the curious.

[Daniel Walton · Rating 3 out of 5]

While I am glad that I read this book, it was quite the slog. The writing is extremely dry and the thought organization is confusing. Much of it reads as though you feel like you missed an earlier sentence, or you read a sentence and it feels like you should have understood but then read again and, no, it still doesn't quite make sense. A good part of the book is devoted to facts, but they are not quite placed in the right context. It felt like economic or political reasoning was missing in some critical parts.
On the other hand, putting in the work to get through this book yielded some valuable knowledge. Gold standard vs floating currency, WWI reparations and debt payments, tariffs, misallocation of capital and economic shocks, all played a role in bringing about and extending the Great Depression. It was enlightening to see all of these factors discussed together in a text.