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Book review: The New Depression: The Breakdown of the Paper Money Economy by Richard Duncan

This book is certainly topical and certainly short (179 pages including the index). The first is useful at the moment with so many economies emerging from recession, if they are doing so at all, very slowly; and brevity is always useful. So it starts with two advantages. The title is intriguing. What does it mean?

The author’s theme is that since the US abandoned its currency’s last vestigial link with gold in 1968, “the nature of money changed. The result was a proliferation of credit”. That is actually a misleading beginning to the book for it is not just another book claiming that all would be well if we had not left the gold standard. (A claim that it is fashionable to disparage, but those who do so seldom face the consideration that while it is straightforward to construct alternatives to the gold standard that do better than it in theory, no actual money has so far outperformed it on all counts.)

Rather the central concern of the book is that the extraordinary expansion of credit of recent years, in the US and elsewhere, was behind the boom, that mistaken spending, on consumption rather than investment, meant that that there was over-indebtedness because the debt could not be serviced and repaid, that this led to the bust, and finally that attempts to reflate the credit bubble risk leading either to really severe recession or to really high inflation.

This is good book and interested readers should not be put off by the asserted importance of the end of link with gold. That assertion is accepted as incorrect in the book’s first sentence. “Credit-induced boom and bust cycles are not new.” The author does go on to write: “What makes this so extraordinary is the magnitude of the credit expansion that fed it.” And that is certainly true.

What is likely to happen and what is to be done? At times the reading of history is dubious. For example chapter eight starts by implying that the end of the gold standard in Europe was the initial cause of the Great Depression and fails to remark that many of the Federal Reserve’s mistakes at the start of the Great Depression were committed when the US was still on the gold standard. But if we look through the golden haze we find clear narrative and a clear analysis of the dangers of trying to deal with the consequences of a burst credit boom by causing another credit boom. Politicians are notoriously busy. They should make time to read this book.

Published by John Wiley and Sons