THE economic rough patch of the past few years inevitably inspires comparisons to and reconsiderations of last century's big economic calamity. This week, in fact, The Economist features a briefing examining some as yet unheeded lessons of the Depression. Economist Joe Stiglitz describes a different view of the Depression in Vanity Fair, which purports to overthrow the current macroeconomic understanding of the troubles of the 1930s. The Depression, he says, can be chalked up to decline in America's agricultural sector:

For the past several years, Bruce Greenwald and I have been engaged in research on an alternative theory of the Depression—and an alternative analysis of what is ailing the economy today. This explanation sees the financial crisis of the 1930s as a consequence not so much of a financial implosion but of the economy's underlying weakness. The breakdown of the banking system didn't culminate until 1933, long after the Depression began and long after unemployment had started to soar. By 1931 unemployment was already around 16 percent, and it reached 23 percent in 1932. Shantytown “Hoovervilles” were springing up everywhere. The underlying cause was a structural change in the real economy: the widespread decline in agricultural prices and incomes, caused by what is ordinarily a “good thing”—greater productivity. At the beginning of the Depression, more than a fifth of all Americans worked on farms. Between 1929 and 1932, these people saw their incomes cut by somewhere between one-third and two-thirds, compounding problems that farmers had faced for years. Agriculture had been a victim of its own success. In 1900, it took a large portion of the U.S. population to produce enough food for the country as a whole. Then came a revolution in agriculture that would gain pace throughout the century—better seeds, better fertilizer, better farming practices, along with widespread mechanization. Today, 2 percent of Americans produce more food than we can consume. What this transition meant, however, is that jobs and livelihoods on the farm were being destroyed. Because of accelerating productivity, output was increasing faster than demand, and prices fell sharply. It was this, more than anything else, that led to rapidly declining incomes. Farmers then (like workers now) borrowed heavily to sustain living standards and production. Because neither the farmers nor their bankers anticipated the steepness of the price declines, a credit crunch quickly ensued. Farmers simply couldn't pay back what they owed. The financial sector was swept into the vortex of declining farm incomes. The cities weren't spared—far from it. As rural incomes fell, farmers had less and less money to buy goods produced in factories. Manufacturers had to lay off workers, which further diminished demand for agricultural produce, driving down prices even more. Before long, this vicious circle affected the entire national economy.

Having seen Mr Stiglitz's writing on the latest downturn, I knew he took a view of the crisis as attributable to long-term structural transformations in the economy, namely, the decline of manufacturing employment. I hadn't realised he'd broadened this view into a new theory of depressions. Unfortunately, I can't seem to locate the research that he indicates underlies this story; perhaps it isn't yet published. I'd like to see it, however, because as this thesis stands it looks remarkably weak.

To begin with, Mr Stiglitz's dismissal of the role of monetary policy is almost comically underexplained:

Many have argued that the Depression was caused primarily by excessive tightening of the money supply on the part of the Federal Reserve Board. Ben Bernanke, a scholar of the Depression, has stated publicly that this was the lesson he took away, and the reason he opened the monetary spigots. He opened them very wide. Beginning in 2008, the balance sheet of the Fed doubled and then rose to three times its earlier level. Today it is $2.8 trillion. While the Fed, by doing this, may have succeeded in saving the banks, it didn't succeed in saving the economy. Reality has not only discredited the Fed but also raised questions about one of the conventional interpretations of the origins of the Depression. The argument has been made that the Fed caused the Depression by tightening money, and if only the Fed back then had increased the money supply—in other words, had done what the Fed has done today—a full-blown Depression would likely have been averted. In economics, it's difficult to test hypotheses with controlled experiments of the kind the hard sciences can conduct. But the inability of the monetary expansion to counteract this current recession should forever lay to rest the idea that monetary policy was the prime culprit in the 1930s.

The initial 12-month economic decline in 2008 was as bad as that in 1929. In the earlier period, however, central banks tightened policy while in the recent recession they opened the monetary spigots. When all was said and done, world industrial output dropped 13% this time around compared to nearly 40% in the 1930s, and unemployment peaked at just over 10% this time, compared with over 25% in the 1930s. The most logical conclusion to draw from the two events wouldn't seem to be that monetary policy was useless, but that it was critical—and more easing still might well have reduced the impact of the recent recession further.

There is a rather tricky problem of timing in Mr Stiglitz's story. Other industrial economies had already gone through a massive decline in agricultural unemployment prior to the Depression without suffering much in the way of ill effects. In 1930, Britain's farms accounted for just 6% of national employment. Yet it sank into Depression along with the rest of the world, and it didn't begin its recovery until it left gold and depreciated the pound in 1931. World agricultural prices began sinking almost immediately after the first world war—between 1919 and 1924 the price of wheat tumbled by some 50%—and yet the American economy managed to carry on until 1929 without serious trouble. (Moreover, productivity gains in agriculture were subdued in the 1920s; prices fell as production disrupted by the war came back online.)

Mr Stiglitz claims that not until the massive increase in government expenditure of the second world war did America provide the economy with the funding it needed to transition from an agricultural to manufacturing economy. And indeed, since BEA records began in 1929 America's fastest three-year growth performance was that from 1941 to 1943. The second fastest, however, was that from 1934 to 1936. In 1936, the American economy grew at a 13.1% annual pace. The three best years for real private investment growth are, in order, 1946, 1935, and 1934. Any theory that purports to explain blistering growth in the 1940s should also be able to explain the blistering growth that began in 1933. A money-focused explanation does; Mr Stiglitz's does not.

His postwar timing is no better. Manufacturing employment as a share of total employment peaked in the 1940s. From 1960 to 1990, it dropped by almost half. If the transition away from manufacturing is to blame for America's ills, why didn't this deep recession occur two decades ago?

Most strikingly of all, Mr Stiglitz attributes much of the suffering of the Depression to...deflation:

Because neither the farmers nor their bankers anticipated the steepness of the price declines, a credit crunch quickly ensued. Farmers simply couldn't pay back what they owed. The financial sector was swept into the vortex of declining farm incomes. The cities weren't spared—far from it. As rural incomes fell, farmers had less and less money to buy goods produced in factories. Manufacturers had to lay off workers, which further diminished demand for agricultural produce, driving down prices even more. Before long, this vicious circle affected the entire national economy. The value of assets (such as homes) often declines when incomes do. Farmers got trapped in their declining sector and in their depressed locales. Diminished income and wealth made migration to the cities more difficult; high urban unemployment made migration less attractive. Throughout the 1930s, in spite of the massive drop in farm income, there was little overall out-migration. Meanwhile, the farmers continued to produce, sometimes working even harder to make up for lower prices. Individually, that made sense; collectively, it didn't, as any increased output kept forcing prices down.

This could have been written by Scott Sumner. A surprise shortfall in nominal incomes led to deteriorating economic conditions and a credit crunch which made things worse. The problem was falling prices, and the solution was a commitment to raise prices to their pre-Depression trend. Leaving gold was just the thing to accomplish this, and sure enough the American economy took off in 1933.

I find his whole argument unfortunate, because I do think there are important structural changes occuring in the American economy that are contributing to a slowdown in real growth potential and to stagnating incomes and rising income inequality. I think he's right that the growth of the financial sector deserves a critical look. But rather than explore the implications of those problems, Mr Stiglitz wants us to reconsider a problem that macroeconomics has effectively solved. I don't get it.