Barry Eichengreen provides a Summer reading list for European policy makers in his latest article on Project Syndicate. Here is Eichengreen:
“Milton Friedman’s and Anna Schwartz’s A Monetary History of the United States belongs at the top of the list. At the center of their gripping narrative is a chapter on the Great Depression, anchored by an indictment of the US Federal Reserve Board for responding inadequately to the mounting crisis.
Friedman and Schwartz are generally seen as reproving the Fed for failing to react swiftly to successive waves of bank failures, first in late 1930 and then again in 1931 and 1933. But a close reading reveals that the authors reserve their most scathing criticism for the Fed’s failure to initiate a concerted program of security purchases in the first half of 1930 in order to prevent those bank failures.
That is a message that the European Central Bank’s board members could usefully take to heart, given their announcement on August 2 that they were ready to respond to events as they unfolded but were taking no action for now. Reading Friedman and Schwartz will remind them that it is better to head off a crisis than it is to rely on one’s ability to end it.”
So true, so true…if just European policy makers had read and understood “Monetary History” then we would not be trapped in this crisis.
There are a couple of other titles on Eichengreen’s reading list, but in my view he forgets a very important book and that is his own “Golden Fetters”. Anybody who would like to understand the international monetary perspectives of the Great Depression should read “Golden Fetters”. And if you understand that you have a much better idea about the international monetary sources of the present crisis. Read Eichengreen’s “Golden Fetters” and replace “gold standard” with “dollar standard” everywhere and then you will get a pretty good idea about why we are still in this crisis. In the Great Depression it was excess demand for gold (from Europe) that caused the crisis. Today it is excess demand for dollars, which is causing the crisis. European policy makers should especially concentrate on what Eichengreen has to say about the mistakes made by European policy makers in 1931-32.
One day I hope to write a book with the title “Green Fetters”, but it will never be as good as “Golden Fetters”, but the topic would be the same – the insane commitment to a failed monetary regime and its dire consequences for the global economy. If just only policy makers would learn a bit from history.
HT David Altenhofen
PS See also Eichengreen’s critique of the ECB’s and the Fed’s inaction here (In German).