The catastrophe of the late 1920s and early 1930s dominates the economic history of the 20th century. This latest study of it, sponsored by the European Science Foundation and involving no fewer than 29 scholars, is evidence of the increasingly systematic effort now being made to place the great depression in proper historical perspective, to understand its terrible dynamics and to comprehend its relevance for current policy concerns, not least European monetary union.
The book is both ambitious and successful. The first section concerns the international context - indispensable in establishing the economic environment within which individual countries found themselves and made policy choices. The second focuses on exchange rates and monetary policy, reflecting current trends in research that stress how the depth and duration of the depression suffered by a country was inversely related to the speed with which it cut the "golden fetters" that bound it to the gold standard: countries like Britain, which cut early, recovered much faster, from a less depressed base, than countries like France and the United States, which persisted in unthinking orthodoxy until the damage became unendurable. A welcome feature of this section is that each chapter covers two countries, adding useful comparative depth. The final section studies various countries' banking systems and their particular vulnerability to crisis, including "fringe" nations such as Portugal, Greece, Bulgaria and the Irish Free State whose varied experiences are generally not familiar to English-language audiences.
The essays, though of a generally high standard, vary in quality. The introductory chapter breaks no new ground but is a concise, lucid and authoritative survey that students everywhere should welcome. But the themes set out so clearly are not always developed in the following chapters. The introduction's stress on central bank policy, for instance, is surely correct, as Theo Balderston confirms in his trenchant comparison of German and British monetary policy, 1919-31. Yet when Forrest Capie considers commercial banking in interwar Britain, with a particular concern to account for the extraordinary stability of that country's highly concentrated banks, he slides over, without discussion, the Bank of England's crucial decision in September 1931 not to defend the exchange rate at all costs. Instead, he prefers to attribute stability to the innate conservatism of the commercial banks' long-standing lending policies and their consequent insulation from the difficulties of borrowers. While such conservatism undoubtedly stood the banks in good stead in 1931, as Capie argues, it is by no means clear that this extreme caution would have saved the banks had the Bank of England, in the face of an external drain of reserves, decided to raise interest rates aggressively, as their US Federal Reserve counterparts did, rather than accept devaluation. While the Bank of England may not have had the resources to persist in such lunacy as long as the Fed did, a few weeks in September and October, 1931, with the bank rate above 8 per cent, might very easily have wreaked US-style havoc even among timorous British banks and their ravaged clients. Innate stability certainly made the Bank of England's task easier, but it did not relieve it of ultimate responsibility for the integrity of the banking system, a responsibility it discharged better than almost all its counterparts in the crucial year of 1931.
In other chapters, some of the opportunities inherent in systematic comparison are missed. For example, while the comparison between French and Belgian experience by Isabelle Cassiers is generally cogently developed, it suffers from an excessive concern with the aggregate trade patterns of the two countries, neglecting the trade between them, surely an important issue particularly in the critical period from March 1935, when Belgium abandoned gold, to September 1936, when France finally did so.
Overall, the book is a valuable survey of the many-faceted financial aspects of the European inter-war economic ordeal. There are some anomalies - why, for example, is France compared only with Italy and Belgium? The volume might have usefully included in the comparative section a chapter devoted to French policy in relation to the major European economic powers, along the lines of the survey of British and German policy ably conducted by Balderston. But even without such additions, the book can be well recommended.
William P. Kennedy is in the department of economic history, London School of Economics.
Banking, Currency, and Finance in Europe Between the Wars
Editor - Charles H. Feinstein
ISBN - 0 19 828803 4
Publisher - Clarendon Press, Oxford
Price - £48.00
Pages - 536