Posted by: Dirk | June 25, 2009

(Book review) The Forgotten Man

I have blogged on Amity Shlaes and her book before, but let me quickly review her book which I have completely read through by now. The idea of the book is to follow the forgotten man, who had to suffer for the presumed mistakes of others. Shlaes sees the origin in the crash not in the financial bubble, but in ‘intervention, the lack of faith in the market place’ (p.7). This is were the trouble starts. The book sets out from an assumption which is not a no-brainer. No economic theory is brought up to back it up. Faith in the market place would end when the outcome is a distribution which is not acceptable to society, most economists would argue. So what does a lack of faith in the market place really mean?

So, I would want to know why the outcome (or equilibrium) became unacceptable, and why there was not adjustment to an acceptable outcome (or equilibrium). These questions have been tackled by John Maynard Keynes in the General Theory, which stops short however. While it explains how a debt bubble in the private sector can be transformed into a debt bubble in the government sector, which as a side effect should produce higher output and employment, it does not answer how the over-indebtedness came to be in the first place. Only in the last chapters of the General Theory does Keynes tackle this question, when he asks whether the interest rate might be set too high and discusses usury and Silvio Gesell (see here). Back to Shlaes.

Accepting the fact that story is written from a specific point of view (which makes it a bit like reading The Economist), the book continues to tell stories and episodes of the Great Depression. That is quite enlightening by itself. I did not know that Hoover first increased spending, and also I was not aware of the details of the Tennessee Valley Authority and all these other institutions build as alternatives to private enterprise. In this, the book is a valuable source. However, I believe that the book could have been much more important if it discussed economic theory as a background story, diving into episodes of relevant history to provide some detail.

The Forgotten Man is a good book for those who want to know more about the Great Depression and the people pulling the levers. It lacks economic theory, however, which must not be a drawback given that you have some education as an economist yourself. Everybody else might find the economic part a bit confusing. For those interesting in comparing today with the Great Depression I recommend a blog which brings us the news from 1930 day by day as it appeared in the WSJ (you can find it in the blogroll now).

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s


%d bloggers like this: