looking for good book on how Great Depression was handled in Europe

[rob in cal]

The writer of New Deal or Raw Deal (I forget his name), argues that some European countries got out of their versions of the Great Depression faster than the US did and that these countries rejected the FDR vision of greater governmental intervention to do so. I'm wondering if anyone has done a detailed study of this.  I know that New Deal or Raw Deal has a chapter on this, but I'm looking for an entire book about this.

[Sam Spade]

Can't think off a book of the top of my head, but a couple of points are:

1) US was a creditor nation and Europe was a debtor nation at that time (due to WWI debts owed and reparations owed between the various countries).  England de facto defaulted on its debts in 1931 and of course Germany stopped reparations at the same time.  Both countries recovered among the quickest.  In other words - it's partly the circumstances. 

2) US was export-dependent, whereas Europe was import-dependent at that time.  The trade wars that started in the 1930s, as always affected export-dependent countries more than import-dependent.

Keep #1/#2 in mind when thinking about where certain countries may end up now.

3) A controversial idea that has arisen up nowadays is the fact that European governments did not use nearly as much pump-priming spending as America.  In fact, some of these governments cut spending.  This idea has naturally become more popular after the Japan experiment.

4) Very importantly, European countries, especially England, devalued their currencies long before the US did.  The way you did that back then was to drop your country off the gold standard.  Some countries, like Sweden, kept their money supply constant by devaluing that way.

5) There was a massive agricultural collapse that occurred in the US (Dust Bowl) that didn't affect Europe at all.  Oversupply was the main problem, as always during these debt-deflations.

6) After Hitler took over in Germany, he immediately started rebuilding war machinery.  That pushed the economy up and out quite quickly, moreso than other places.  Preparing for war/war is always successful in getting out of debt-deflations.  Destroys oversupply problems.

[Beet]

I think you meant Europe was a debtor nation, and US creditor.

James Hamilton had this to say about the gold standard:

"Ben Bernanke and Harold James, in a paper called "The Gold Standard, Deflation, and Financial Crisis in the Great Depression: An International Comparison" published in 1991 (NBER working paper version here), noted that 13 other countries besides the U.K. had decided to abandon their currencies' gold parity in 1931. Bernanke and James' data for the average growth rate of industrial production for these countries ... was positive in every year from 1932 on. Countries that stayed on gold, by contrast, experienced an average output decline of 15% in 1932. The U.S. abandoned gold in 1933, after which its dramatic recovery immediately began.

The same happened after Italy dropped the gold standard in 1934, and for Belgium when it went off in 1935. On the other hand, the three countries that stuck with gold through 1936 (France, Netherlands, and Poland) saw a 6% drop in industrial production in 1935, while the rest of the world was experiencing solid growth."

[pbrower2a]

We will have to devalue our currency just to protect creditors from default.

As for the supposed economic miracle of Nazi Germany, that was based on keeping industrial wages the lowest in Europe (despite the level of economic and technological development as well as the high proportion of industrial workers), theft (from Jews, of course), autarky (near prohibition of imports), and a willingness to operate the national finances in bankruptcy. The Third Reich was bankrupt when it invaded Poland even without having spent any of its military build-up in warfare.  Nazi Germany wasn't quite the economic snakepit that it was as a political entity, but it came as close as possible.

What went wrong in America in recent years? Our manufacturing businesses elected to become importers, and our government pushed debt as a substitute for wages and a means of creating illusory wealth.   

[Sam Spade]

We will have to devalue our currency just to protect creditors from default.

As for the supposed economic miracle of Nazi Germany, that was based on keeping industrial wages the lowest in Europe (despite the level of economic and technological development as well as the high proportion of industrial workers), theft (from Jews, of course), autarky (near prohibition of imports), and a willingness to operate the national finances in bankruptcy. The Third Reich was bankrupt when it invaded Poland even without having spent any of its military build-up in warfare.  Nazi Germany wasn't quite the economic snakepit that it was as a political entity, but it came as close as possible.

Not disagreeing there one bit on your observations.  As they kept rebuilding, Germany's currency kept devaluing and it would have been screwed not so long afterwards.  But rebuilding the war machinery is what finally pushed the German economy forward.  Look at what it did to America starting in 1939, 1940.

You know, there is a theory out there that it is much, much harder to devalue a currency without some type of commodity standard than otherwise.

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Look, the manufacturers simply could not compete with foreigners because of wages - that was evident starting in the mid-1970s or so (maybe even theoretically the late 1960s).  I personally think that the incredible growth of the service and financial sector was merely able to cover up this problem.  Now granted, there were a lot of service/financial jobs that were based on real growth (things to with computers other than the manifestations of the dot-com bubble, for example), but a lot was based on debt expansion, consumption and pushing paper.

Anyway, I have said before that I expect wages to be 50% of late 2007 levels when this is all over - I'll keep sticking to that.

[Sam Spade]

I think you meant Europe was a debtor nation, and US creditor.

Thanks and changed.  Typing too fast.

[jokerman]

Also the Great Depression simply started earlier in Europe than in the U.S.

[Beet]

By certain standards, the Soviet Union had a wonderful economy in the 1930s as well.

The commonality between the 1930s authoritarian recoveries was an invasion of the traditional realm of the 'economic system' by the political system, where governments, leaders, and parties used ideology and brute force to propel investment. Ideology and brute force in combination have tremendous capabilities to infect the culture and psychology of a people, and this in turn determines economics, particularly when there are productive investment opportunities that simply must be taken advantage of.

Keep in mind that this was only half a century after the construction of the Brooklyn Bridge. Industrial employment as a percentage of the workforce, and industrial output as a percentage of the overall economy, was still rising, and this indicated that the full power of the inventions and continued engineering of the industrial revolution still had not yet been fully implemented even in the advanced countries: there were still many roads, bridges, dams, factories, etc. which could be built for the given population and built environments that existed at the time.

Therefore the political system's invasion in the economy also drove the economy to make worthwhile investments. The Japanese experience of the 1990s shows the limitations, IMO, of trying to apply the same strategies to a fully industrialized economy, where the breakthroughs of the industrial revolution have already been largely implemented. Not to say that there are no rooms for improvement, but they become less dramatic over time.

An equivalent today would be investments in information technology, where despite all the improvements of the last 30 years, invention is still ahead of implementation- particularly when you look at areas like information sharing, cloud computing, and workplace efficiencies. But this requires a skilled workforce.

I am skeptical of the idea that a drastic fall in living standards in inevitable.

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We have been a part of the global economy and enjoyed the benefits of it, and now we are suffering from its sicknesses. For a while, we benefitted from its sicknesses as well (and in some ways we still are).

Part of the problem is trying to have a global marketplace without consistent legal or political environments across countries. According to the Solow growth model, capital investment at a fixed level of technological and managerial soundness has a higher rate of return from a low base than from a high base. Theoretically, what this consists of is capital investment concentrated in developing countries: these countries export goods, but they also import raw materials and machinery for investment.

Of course, developing countries can also import capital for the purposes of speculation; but the point here is that they have the greatest potential for a high real rate of return on capital, provided a favorable political environment.

But political or economic instability in these countries that originate from their inherent economic weakness to begin with might prevent this kind of investment-- who wants to invest in a country that could easily become a basket case? Worse, what developing country's political authorities want to deal with the instability of capital inflows and outflows, when that instability could easily spill over into political instability (see Latin America in the 1980s, Russia and Asia in the 1990s, Latin America again in the late 1990s and early 2000s)?

In the 2000s, with the only exception of Central and Eastern Europe, developing countries burned by speculative bubbles began pushing away or sterilizing much incoming capital by building up foreign exchange reserves. That pushed capital towards the United States and Europe, which for political reasons were seen as safe havens. But the again, the capital was directed not towards investment but for speculative purposes. And according to the Solow growth model, it's arguable how much room there was for high-return investment anyway.

The two basic problems are that developing countries lack confidence that they can safely base their economy on global capital when that global capital might easily flee; and that the global marketplace tends to use capital too often for speculative purposes.

[pbrower2a]

We will have to devalue our currency just to protect creditors from default.

As for the supposed economic miracle of Nazi Germany, that was based on keeping industrial wages the lowest in Europe (despite the level of economic and technological development as well as the high proportion of industrial workers), theft (from Jews, of course), autarky (near prohibition of imports), and a willingness to operate the national finances in bankruptcy. The Third Reich was bankrupt when it invaded Poland even without having spent any of its military build-up in warfare.  Nazi Germany wasn't quite the economic snakepit that it was as a political entity, but it came as close as possible.

Not disagreeing there one bit on your observations.  As they kept rebuilding, Germany's currency kept devaluing and it would have been screwed not so long afterwards.  But rebuilding the war machinery is what finally pushed the German economy forward.  Look at what it did to America starting in 1939, 1940.

You know, there is a theory out there that it is much, much harder to devalue a currency without some type of commodity standard than otherwise.

Nice addition. It is best that we all debunk the so-called German (Nazi) economic "miracle" that can result only in horror. It's not enough to say that all that was wrong with Nazi Germany was that it persecuted Jews, had despotic leadership, showed unqualified rejection for human rights, and eventually started the worst war in history. Fascist economics always seduce entrenched elites because they imply the impoverishment of working people for the enhancement of profits. The German economic miracle of the post-World War II era will be more relevant... and more desirable.

Currency revaluation is the most humane method of recognizing that other countries have caught up to the United States in productivity. Divide the productivity of a society by the amount of currency in circulation and one gets an appropriate measure for the currency. We Americans are no longer #1 in productivity. That's not to say that we must be a nation of hamburger-flippers who go home to dreary flats with nothing better to do than to watch cable TV through televisions manufactured in Asia.

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Look, the manufacturers simply could not compete with foreigners because of wages - that was evident starting in the mid-1970s or so (maybe even theoretically the late 1960s).  I personally think that the incredible growth of the service and financial sector was merely able to cover up this problem.  Now granted, there were a lot of service/financial jobs that were based on real growth (things to with computers other than the manifestations of the dot-com bubble, for example), but a lot was based on debt expansion, consumption and pushing paper.

Anyway, I have said before that I expect wages to be 50% of late 2007 levels when this is all over - I'll keep sticking to that.
[/quote]

Real wages have taken a dive since the 1970s. The supposed prosperity of the GWB Administration now looks like a seductive and destructive fraud -- the greatest fraud in human history.  I hold to a view that the test of prosperity in any nation is not how much opulence the royal family can collect and display, how glitzy Rodeo Drive is, how many horses the big landowners hold, how huge the mansions are, how much fine china the plutocrats can collect, or how much cocaine a nation can consume: it's how well the ordinary fellow lives. Any system can enrich elites and gangsters by impoverishing everyone else; who needs that?

Maybe we will have to turn to social democracy as the only possible means of preventing destitution of the masses. Maybe we can produce enough with all the technology at our disposal with 30-hour workweeks instead of forty-hour workweeks of the past. If we end up being priced out of manufactures from East Asia as we have been priced out of manufactures from western Europe, then we will at least be able to produce what we need.   

[Gustaf]

How the Great Depression was handled in Europe? We knew it was caused by the Jews, so we tried to eradicate them. Didn't work, so I recommend another solution this time.

[minionofmidas]

How the Great Depression was handled in Europe? We knew it was caused by the Jews, so we tried to eradicate them. Didn't work, so I recommend another solution this time.