Category: Economic history

Irwin on Smoot-Hawley

This is a very useful primer on interwar protectionism by the leading historian of US trade policy. (I had never heard of ‘Smoot Smites Smut’, which is worth the price of admission alone.) Although Doug could have usefully mentioned that the biggest costs of protectionism then were geopolitical, and those ended up being fairly catastrophic.

Economists sometimes assume that the right way to talk about protectionism is to moralize. I prefer analyzing the causes of protectionism: it may be a very bad idea, but sometimes, in democracies, it becomes inevitable. Doug, in a manner reminiscent of Adam Posen, argues that expansionary monetary policies in the US are a good way of keeping the protectionist wolf at bay there right now. The same logic applies to Europe as well.

Eichengreen and Temin on systems failures

Barry Eichengreen and Peter Temin have written classic accounts of the Great Depression. If you haven’t read Golden Fetters, and Lessons from the Great Depression, you should.

But if you don’t have time for that, they have a piece on Vox which reprises the main conclusion of their work:

an international monetary system is .. a system in which countries on both sides of the exchange rate contribute to its smooth operation. Actions by surplus countries, and not just their deficit counterparts, have systemic implications. They cannot realistically assign all responsibility for adjustment to their deficit counterparts.

This is as true for EMU and “Bretton Woods II” as it was for Bretton Woods, or the Gold Standard, but it is a lesson that at times seems to have been completely forgotten.

Depression-Era Economics

The literature on the Great Depression throws up some curious parallels and contrasts to today.

From Kindleberger (The World in Depression, 1929-1939, p. 194):
“In the electoral campaign, Roosevelt charged Hoover with total responsibility for the depression. It’s origin, he said, was entirely within the United States… Hoover, in reply, insisted that the depression had originated abroad.”

Also from Kindleberger, p. 139:
“The Unemployment Insurance Fund, being in deficit, had to be made up by the German government, which thereby suffered a budget deficit. The Socialist Party proposed raising contributions to the fund by a 4 per cent levy largely on government officials, whose contracts provided protection from unemployment.”

In Ireland, the first Fianna Fáil budget of 11 May 1932 included a tax amnesty for those with undeclared overseas accounts.

The settlement would enable them to resolve any outstanding liabilities by paying 75 per cent of the amount owed in outstanding taxes on foreign holdings from 1914 to the present, with no penalties or interest charges.
(Dáil Éireann – Volume 41 – 11 May, 1932 – In Committee on Finance. – Financial Resolutions—Minister’s Statement.)

Ronan Fanning’s book on the Department of Finance, pps. 233-4, reveals that the same government hoped to but failed to cut public service pay.

“This proved a difficult process and the reductions were widely resisted by public servants, including the senior civil servants that the government relied on to implement its policies – some , whose tenure predated the state were threatening to take early retirement under a clause in the 1921 Treaty. The proposed cuts were targeted at higher-paid public servants – including Government ministers. This dispute suggests a strong division of opinion, with the farming community very much in favour of cutting the cost of public services. One minority report to the report on this topic concluded that:

‘Even at the reduced rate there are many competent people who would gladly exchange places with public servants for the next ten years. The discontented State Servant would derive much benefit from a sojourn in the beet fields of Leinster, the cow pasture of the Kerry hills, or turf banks of the Bog of Allen for £1 a week’.”

Keynes in Ireland

Keynes’ famous lecture on economic experimentation, delivered at UCD in April 1933, has recently become available online.

Death of Angus Maddison

Economic history has lost two giants in the past month: first François Crouzet, and now Angus Maddison. Maddison was a larger than life character and a committed Hibernophile who will be impossible to replace. Both men will be greatly missed.