Ben Bernanke and the whole ruling class set out in 2008 not to repeat the errors of the Great Depression. They have ended up doing so anyway. One reason: even now, there is no clear understanding of precisely what the “errors of the Great Depression” really were. Was their too much reliance on markets or not enough? Too much money or not enough? Too much permission for banks to fail or not enough? Too much government spending or not enough?
To get the right answers to these questions requires the best source material. And the best possible source material is the remarkable documentary history by Benjamin M. Anderson: Economics and the Public Welfare: A Financial and Economic History of the United States, 1914–1946.
Anderson was one of the first economists to provide a systematic account of the causes of the Great Depression. That is the essence of this book and its great contribution. There is no other book that compares in its depth of analysis, readability, and reliability as a first-hand account.
Anderson had feet both in academia and banking. He was on the faculty at Columbia and later at Harvard, and then joined the National Bank of Commerce in 1918. Two years later, he moved to Chase National Bank to serve as economist and editor of the Chase Economic Bulletin.
He was also a world-class chess player and wrote what's been described as a brilliant preface to Jose Capablanca's book A Primer of Chess. Sadly, Anderson never saw Economics and the Public Welfare in print. He died of a heart attack just prior to its publication.
The years between the forming of the Federal Reserve and the end of World War II are some of the most interesting and formative years in US economic history.
Imagine having a correspondent on the ground keeping a rich, informed diary of the day-to-day, week-to-week, and year-to-year events as seen through the eyes of an Austrian economist, from the creation of the Federal Reserve through the Great Depression to Bretton Woods. That is what Economics and the Public Welfare is.
Anderson provides some theory along the way, but what this great book primarily does is chronicle monetary and economic events from the beginning of the Fed's operation to after the war. Politics, stock prices, and banking and trade data, plus a fast-paced narrative combine to make the reader feel like he or she is there.
As you would expect a bank economist would, Anderson provides a blizzard of numbers to provide emphasis for his story. For instance, Anderson provides the principal resource and liability items of the Federal Reserve during the war. Total resources ballooned from $637 million in 1915 to $5.2 billion in 1918. Liabilities exploded as well, from $165 million to $2.5 billion, the majority of these liabilities being $1.7 billion of member banks' reserve deposits. This is greater balance-sheet growth than the Bernanke Fed post-2008 crash.
The book is not all history. He covers theory extremely thoroughly, hammering all forms of Keynesian theory, and explaining why it is wrong and dangerous.
There is an enormous amount of wisdom in this book. The introduction for this new edition is by economist Mark Thornton. Douglas French writes the editorial preface.
Everyone trying to understand monetary and economic policy during the Depression or today and the subsequent effects should have Economics and the Public Welfare loaded and ready to read cover to cover, or to refer to often. Anderson is an indispensable guide to government monetary policy, as it happened, that still haunts us today.