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The Great Depression has arguably been the major peacetime macroeconomic shock in world economy since the start of modern economic growth. From 1929 to 1933 the GDP per capita fell by a third in the United States and by about 9 percent in the Atlantic economy. In spite of decades of research, its causes remain still controversial: Ben Bernanke has felicitously called the issue, the "Holy Grail" of macroeconomics. Why did a recession start in 1929 and, above all, what transformed a mild downturn into the worst economic crisis since the Industrial Revolution, with far-reaching political and social consequences?
Most of the answers to these questions can be framed in two different interpretative traditions, the "real" and the "monetary" (or "financial") story. Although disagreeing on most issues, they share a negative view of the conditions of agriculture during the "Roaring Twenties." For instance, Peter Temin states that, after the war, "agriculture had gone from prosperity to poverty." However, the two traditions single out different sources of weakness: the "real" story focuses on the structural disequilibrium between supply and demand in the world market for agricultural products, and the "monetary" one on the high level of debt of American farmers. In both stories, agriculture was highly vulnerable to any cyclical downturn, and its crisis was a major component of the depression. This stylized fact is routinely repeated in general books about the economy of the interwar years: for instance, according to Patricia Clavin, "the troubled health of agriculture, especially in eastern and southern Europe, was the most serious drag on European economic growth."
This article challenges this view. The conditions in agriculture on the eve of the depression, although far from ideal, were not as bad as suggested by the received wisdom. Therefore, the collapse of agricultural prices in 1930-1933 and the ensuing devastating crisis were not a necessary consequence of the farmers' behavior in the previous decade. Given the clear distinction between the two stories, they will be dealt with separately.
AGRICULTURAL "OVERPRODUCTION" AND THE DEPRESSION: THE "REAL" STORY
The Causes of the Depression
According to the "real" story, agriculture contributed both to the outbreak of the depression in 1929 and to its catastrophic worsening in the second half of 1930. In the short run,...