Great Depression

The Great Depression was a massive global economic recession (or "depression") that ran from 1929 to approximately 1939. It led to numerous bank failures, high unemployment, as well as dramatic drops in Gross Domestic Product (GDP), industrial production, stock market share prices and virtually every other measure of economic growth. It is generally considered to have bottomed out in 1933, but it was not until well after the end of World War II before such indicators as industrial production, share prices and global GDP surpassed their 1929 levels.

End of the Great Depression

In the United States

For further details, see the main New Deal article.

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It was not until the U.S. entered World War II that Roosevelt's ideas for massive public expenditures and deficit spending truly began to bear fruit. Roosevelt's administration, of course, had little choice but to increase expenditures, given the war effort. Even given the special circumstances of war mobilization, New Deal policies seemed to work exactly as predicted, winning over many Republicans, who had been the New Deal's greatest opponents. When the Great Depression was brought to an end by the Second World War, it was obvious that the turnaround had been caused primarily by the reinforcement of business through government expenditure.

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In truth Roosevelt had foreseen from early in his Presidency that only a solution to the international trade problem would finally end the depression, and that the New Deal was, to no small extent, a "holding action". He contemplated precipitating a war with Japan early on, in hopes of dealing with the problem early. However, the intensity of the economic crisis convinced him that before the world situation could be dealt with, the United States would have to put its own fiscal house back in order. His original conception was that the New Deal would restore circumstances which would allow for a return to balanced budgets and an international gold standard. It was only gradually that he came to the conclusion that it was essential to remake the U.S. economy in a more extensive fashion, particularly because of the "Roosevelt Recession" of 1937, when he had balanced the budget by restricting fiscal support to the economy.

Related Topics:
International trade - Japan - Fiscal

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Thus the statement "it was World War II that ended the Depression", while often asserted by partisans as proof that the New Deal "failed" is, in fact, the view that the architects of the New Deal themselves saw as the reality: that as long as Europe was marching towards war, Japan was engaged in imperial conquest, and the international debt and trading system were still organized in an attempt by creditors to be paid back for World War I at pre-war values for gold, that a full solution to the economic crisis was impossible.

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New Deal programs sought to stimulate demand and provide work and relief for the impoverished through increased government spending, by:

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• instituting regulations which ended what was called "cut throat competition" (in which large players supposedly used predatory pricing to drive out small players);
• creating regulations which would raise the wages of ordinary workers, to redistribute wealth so that more people could purchase products.

The original implementation, in the form of the National Recovery Act, brought in direct unemployment relief, and allowed:

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• business to set price codes;
• the NRA board to set labor codes and standards;
• the Federal government to insure the banking system and provide price supports for agriculture and mining.

This is referred to as the First New Deal. It was centered around the use of the alphabet soup of agencies set up in 1933 and 1934, along with the use of previous agencies, to regulate and stimulate the economy.

Related Topics:
First New Deal - Alphabet soup - 1933

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The theories behind the New Deal matched the later prescriptions of British economist John Maynard Keynes, who advocated increased government spending in a financial crisis. In 1929 federal expenditures constituted only 3% of the GDP. Between 1933 and 1939, federal expenditure tripled, and Roosevelt's critics accused him of turning America into a socialist, or even Stalinist state. The primary purpose of the New Deal were as follows: to prevent the economy and banking system from going into a free fall; to provide effective relief until larger economic forces would end the slump; and to prevent those factors which had exacerbated the slump. The New Deal was both a program of national recovery and of reform. An interesting insight into what motivated Roosevelt came from the transition from the Hoover administration — both men agreed that it was a global maladjustment of prices, debts and production that was causing the slump. The disagreement came over whether the US government should act first to try and negotiate an end to the root causes internationally, which was Hoover's view, or act for domestic recovery and reform until the international situation could be resolved, which was FDR's view.

Related Topics:
John Maynard Keynes - 1929 - GDP - 1933 - 1939 - Stalinist - Recovery - Reform

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The New Deal was rooted in new ideas, but also in economic orthodoxy of balanced budgets, and restraint of federal power. It represented bigger and broader government than ever before, but not as big as government would later become: spending on the New Deal was far smaller than on the war effort. In short, federal expenditures went from 3% of the GDP in 1929 to about 33% in 1945. The big surprise was just how productive America became: spending financially cured the depression. Between 1939 and 1944 (the peak of wartime production), the nation's output more than doubled. Consequently, unemployment plummeted—from 19% in 1938 (already down from 1933's 24.9% peak) to 1.2% in 1944—as the labor force grew by ten million. The war economy showed just how large the fiscal stimulus required to end the downturn of the Depression was, and it led, at the time, to fears that as soon as America demobilized, that it would return to Depression conditions and industrial output would fall to its pre-war levels. There is general agreement that it was World War II which finally provided the United States Federal Government with the political will to buy its way out of the Depression and resolve the global monetary crisis by the imposition of the Bretton Woods system.

Related Topics:
1929 - 1945 - 1939 - 1944 - 1938 - 1933 - War economy - World War II - Monetary - Bretton Woods system

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