EH447, 08/09 Great Depressions in Economic

History

Introduction

Albrecht Ritschl

Course outline

Week 2-1: IntroductionWeeks 2-2 through 6: The U.S.

DepressionWeeks 7-8: Europe and the

Great DepressionWeeks 9-10: Project

presentations

Summer Term: Exam

Course Outline (cont’d)Week 2-2 Hayek v Friedman: Was Money Too Tight Or Too Strict?

Week 3-1 Revisiting the Monetary Hypothesis

Week 3-2 A Housing Bubble? Keynesianism v Fisher

Week 4-1 A Bubble in the 1929 Stock Market?

Week 4-2 It’s Crunch Time, Ben: The Financial Accelerator

Week 5-1 Revisiting the Financial Accelerator Hypothesis

Week 5-2 Animal Spirits? The Keynesian Hypothesis Revisited

Week 6-1 Labour Markets and the Great Depression: the Minnesota View

Week 6-2 Monopoly Power and Trade Unionism: A Modified Supply Side View

Course Outline (Cont’d)

Weeks 7-8: Europe and the Great Depression

Week 7-1 Europe and the Great Depression

Week 7-2 A Tale of Two Recoveries: the U.S. and Germany, 1933-1937

Week 8-1 Europe’s Great Depression, 1920-1960; A Long Term View

Week 8-2 The Macroeconomic Effects of the two World Wars

Weeks 9-10: Project Presentations by Students

Course Material

Coming soon: on Moodle

To be mirrored on my personal website at the LSE

Figure 1: WE GDP Per Capita 1901-73

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

1901

1905

1909

1913

1917

1921

1925

1929

1933

1937

1941

1945

1949

1953

1957

1961

1965

1969

1973

1990

Gh

eary

Kh

amis

$ (

Mad

dis

on

)

Total 12 Western Europe

1.95 % Trend

Observations

The trend line is “counterfactual”, derived from theory

Neoclassical Growth Theory: steady state growth of output per capita is around 2 % per year

In a linear chart, this yields an exponential function with ever-increasing slope

Figure 1: WE GDP Per Capita 1901-73

1,000

100,000

1901

1905

1909

1913

1917

1921

1925

1929

1933

1937

1941

1945

1949

1953

1957

1961

1965

1969

1973

1990

Gh

eary

Kh

amis

$ (

Mad

dis

on

)

Total 12 Western Europe

1.95 % Trend

Observations Logarithmic y scale: constant percentage

growth is translated into constant slope Exponential functions now become straight

lines The 2% trend is thus now a straight upward

sloping line Neoclassical Growth Theory: slope of this line

is around 2 % per year (here a bit smaller) Depressions and upswings look a bit

compressed

Figure 2: Europe's Great Depression and Recovery, 1913-1973:

WE GDP per Capita Relative to 1.95 % Trend

0

20

40

60

80

100

120

1901

1905

1909

1913

1917

1921

1925

1929

1933

1937

1941

1945

1949

1953

1957

1961

1965

1969

1973

1977

1981

1985

1989

1993

1997

2001

1913

=10

0

1921 1932 1945/6

Deviations from Trend

Now have trend as horizontal line Look at cycles as deviation from

trend

Surprising result: find Europe in recession from 1920 to1945

Other important trends First (logarithmic) differences Hodrick/Prescott filter Bandpass filters

In all cases, define cycles as deviations from trend (we will see this in more detail)

Vs. NBER definition: recession if negative rates of change in two subsequent quarters

The special case of Britain

Britain the first industrializer Growth and productivity slowdown in

late 19th century, subsequent acceleration

Low British trend growth 1920-80 drags down European average

Reversed if allow for structural breaks, but highly doubtful concept

Figure 3: Jeremy Clarkson's Nightmare- WE GDP Per Capita Relative to the UK -

0

20

40

60

80

100

120

18

70

18

76

18

82

18

88

18

94

19

00

19

06

19

12

19

18

19

24

19

30

19

36

19

42

19

48

19

54

19

60

19

66

19

72

19

78

19

84

19

90

19

96

20

02

UK

= 1

00

1918 1934 1946

Extrapolated Trend?

Chronic Depression: British Per Capita GNP and Trend, 1919-2004

0

5,000

10,000

15,000

20,000

25,000

19

19

19

24

19

29

19

34

19

39

19

44

19

49

19

54

19

59

19

64

19

69

19

74

19

79

19

84

19

89

19

94

19

99

20

04

Y / N

1.6 % Trend 1918

2.0 % Trend 1947

Chronic Depression: British Per Capita GNP and Trend, 1919-2004

1,000

19

19

19

24

19

29

19

34

19

39

19

44

19

49

19

54

19

59

19

64

19

69

19

74

19

79

19

84

19

89

19

94

19

99

20

04

Y / N

1.6 % Trend 1918

2.0 % Trend 1947

British Y / N Relative to 1.6% Trend (Percent)

0

20

40

60

80

100

120

1918

1923

1928

1933

1938

1943

1948

1953

1958

1963

1968

1973

1978

1983

1988

1993

1998

2003