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Why didn't economists predict the Great Depression?

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  • Taylor, Leon

Abstract

Economists failed to forecast the Great Depression, perhaps because they had lacked reason to theorize enough about business cycles. Since theory is a public good, the market produces too little of it. The prospect of ex post fame may induce theory; but fame comes from explaining famous events, not from averting adverse events. Also, learning-by-doing induces theory by cutting its cost, favoring the first theories to be developed. These dealt with markets – not business cycles – in the decades before the Depression.

Suggested Citation

  • Taylor, Leon, 2014. "Why didn't economists predict the Great Depression?," MPRA Paper 54214, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:54214
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    File URL: https://mpra.ub.uni-muenchen.de/54214/1/MPRA_paper_54214.pdf
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    References listed on IDEAS

    as
    1. Belleflamme,Paul & Peitz,Martin, 2010. "Industrial Organization," Cambridge Books, Cambridge University Press, number 9780521681599, November.
    2. Mill, John Stuart, 1848. "Principles of Political Economy (III): Exchange," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, volume 3, number mill1848-3.
    3. Mill, John Stuart, 1848. "Principles of Political Economy (I): Production," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, volume 1, number mill1848-1.
    4. Wesley Clair Mitchell, 1927. "Business Cycles: The Problem and Its Setting," NBER Books, National Bureau of Economic Research, Inc, number mitc27-1, July.
    5. Hayek, F. A., 1995. "Contra Keynes and Cambridge," University of Chicago Press Economics Books, University of Chicago Press, number 9780226320656 edited by Caldwell, Bruce, September.
    6. Wesley Clair Mitchell, 1927. "Introductory pages to "Business Cycles: The Problem and Its Setting"," NBER Chapters, in: Business Cycles: The Problem and Its Setting, pages -23, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

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    1. New and interesting working papers
      by Robin in Cherokee Gothic on 2014-03-19 20:01:13

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    More about this item

    Keywords

    Great Depression; theory of business cycles; history of macroeconomic thought; marketplace of ideas; learning by doing.;
    All these keywords.

    JEL classification:

    • B10 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - General
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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