Few events in modern economic history have garnered the scholarly attention and controversy of the Great Depression of the 1930s. Even so, the overwhelming focus of this vast literature is on the causes of the slump itself. Comparatively little attention has been paid to the recovery process, nor has much consensus emerged as to the reasons for the unparalleled length of the crisis. For decades after World War II, in fact, the spirited debate between Keynesian and monetarist economists concerning the Great Depression focused almost entirely on questions of causation and the upper turning-point of the cycle.

Frank Steindl, the Regents Professor of Economics and Ardmore Professor of Business Administration at Oklahoma State University, makes a welcome intervention in the literature on the Great Depression with his new book—a study that resolutely focuses on the recovery process of the 1930s in the United States. He provides an overview of some prevailing theories of the aborted recovery in the latter part of the thirties and closely examines the role of money stock dynamics and bank credit mechanisms in accounting for the lower turning-point of the cycle.

Steindl parallels this discussion with an assessment of some of the explanations advanced by contemporary economists—most prominently Irving Fisher—who were perplexed by the fragility of the recovery process. Finally, he advances new arguments regarding bank credit to account for the anemic upturn of the late thirties in the face of sustained growth in the money supply. It is within this context that Steindl focuses on endogenous propagation mechanisms as important yet overlooked factors in the tendency of the economy to move back to trend rates of growth.

Steindl's analysis of interwar recovery mechanisms is grounded in a monetarist perspective. He argues that increases in the money stock help to explain almost half of the adjustment to full capacity utilization by the end of the 1930s. In turn, he rejects the importance of fiscal policy. Indeed, Steindl's survey of the professional literature in the wake of the crisis prompts him to conclude how ironic it was that such scholarship “so heavily emphasized the role and effects of fiscal policy when the empirical evaluations found so little…. [while in contrast] the literature on monetary influences on the economy … was meager, but the actual force of those monetary impulses appears to be quite important” (p. 134). Even so, monetary expansion due to international inflows of gold had limited effect, as Steindl admits, due to the decline in the provisioning of credit by banks eager to strengthen feeble balance sheets. The contractionary tendencies of Federal Reserve Board policy and the increasingly rigorous oversight of bank examiners also served to squelch credit expansion.

Nevertheless, Steindl notes there remains a substantial portion of the movement in the output data for which additional arguments must be found. A greater challenge in the evidence, in his view, is that prices and output moved in opposite directions during the upturn of 1938–1940. How might a monetary approach to one of the greatest crises in modern economic history account for such perversely conjoined movements in the data?

Steindl concludes that price deflation in the late thirties was the result of an increase in money demand. An unstable tendency was thus enhanced as further deflation worked to further depress entrepreneurial expectations. The anticipation of further price declines, Steindl argues, worked to reduce velocity—he thus invokes a kind of “liquidity trap” argument to account for the fragility of recovery in the late thirties in the face of gold inflows serving to increase the money stock overall. Yet, as we know, as the thirties drew to a close, money demand did not continue to rise and velocity itself turned around. Here Steindl invokes a more traditional argument concerning the anticipation of war as an explanation of the lower turning-point.

Having rejected Keynesian arguments regarding effective demand, and seeing no genuine explanatory value in fiscal policy, Steindl concludes his work by striving to explain the remaining evidence on recovery in the late thirties, above and beyond that accounted for by the quantity theory of money, in terms of the endogenous propagation of output toward trend values. He asserts that “the resilient mechanisms generating such behavior are rooted in the dynamics of an enterprise economy…. [such as] incentives, opportunities, signals, and flexibility, the effects of which increase productivity” (p. 182). With this invocation of “real business cycle theory,” Steindl closes his study by explaining the rising output and falling prices of the late 1930s by a combination of changes in money demand and of mean-reversion mechanisms at work in the economy as a whole.

By his own admission, Steindl has produced a frustrating book. He admits that the endogenous propagation mechanisms that stand at the center of his analysis of the recovery process in the 1930s “cannot be observed directly” (p. 183). Offering no concrete evidence as to the manner in which the mean-reversion in output performance in the interwar American economy might have revealed itself, Steindl is forced to offer a series of assertions about the explanatory value of his endogenous model of recovery. This is hardly the stuff of convincing argument and it leaves the reader unpersuaded. Although Steindl's determination to shore up the weaknesses of the quantity theory approach to the macroeconomics of the 1930s is laudable, the resort to an unobservable and endogenous restorative mechanism begs for more documentation and empirical detail.

If indeed Steindl sees real productivity change as the key part of endogenous recovery mechanisms in the cycle, it would have considerably strengthened his book to have focused on factors affecting supply during the 1930s. To be sure, his primary focus in this work is on monetary dynamics, but it is nevertheless unfortunate that Steindl is left arguing for the salience of processes of technological change and productivity enhancement—aspects of interwar economic experience he does not examine in any detail. There is a small but important scholarship on these matters. It is this literature—two older examples of which are Gerhard Mensch, Stalemate in Technology: Innovations Overcome the Depression (Cambridge, MA: Ballinger, 1979) and Esther Fano, “Technical Progress as a Destabilizing Factor and as an Agent of Recovery in the United States Between the Two World Wars,” History and Technology 3 (1987): 249–74, and more recently Alexander J. Field, “The Most Technologically Progressive Decade of the Century,” American Economic Review 93, no. 4 (2003): 1399–413—that provides some of the disaggregated empirical detail that Steindl believes essential for improvement in the analysis of the dynamics of interwar economic recovery.