Mon. Feb 26th, 2024

The Global Reach of the Depression

In the late 1920s, countries with market economies faced a widespread global economic downturn that would later be known as the global depression. This economic upheaval, known as the Great Depression, showed varying severity in different countries, with some experiencing relatively mild impacts. In contrast, others, especially the United States, bore the brunt of the worst effects. Amid the crisis in 1933, 25 percent of the entire workforce and 37 percent of non-agricultural workers in the United States found themselves completely unemployed, resulting in horrific consequences such as famine, widespread loss of farmland and homes, and a notable surge in homeless people. People experiencing poverty took desperate measures to escape this dire situation, surreptitiously boarding freight trains that crisscrossed the country. Among those who were hit hardest were the dispossessed cotton farmers, colloquially known as “Okies,” who, lured by the false promise of abundant job opportunities depicted in posters, crammed their meager belongings into rickety Model T and migrated to California.

Although early signs of economic recovery emerged in the second quarter of 1933, the following years, 1934 and 1935, showed a slow and primarily stalled recovery. A more robust economic recovery began to take hold towards the end of 1935. However, it was halted by the return of the economic downturn in 1937, which marked a significant setback in the recovery process. The protracted and languid pace of recovery meant that the United States. However, it had made some initial progress and had not fully emerged from the grip of the Great Depression by the time it entered World War II in December 1941. The long-term impact of the economic downturn and the emergence of a new crisis in 1937 contributed to the prevailing sentiment that the entire decade of the 1930s in the United States could be called the era of the Great Depression.

The Great Depression has been characterized as a “defining moment.” The long-term impact of this event had a profound impact on the socio-economic order, which was primarily manifested in the significant transformation of the federal government’s role in the national economy. The protracted period of economic contraction and prolonged recovery forced a majority of the American public to not only accept but also actively advocate for expanding the role of government. At the same time, the increasing federal control over business activity met with resistance from most corporations. Initiatives during this era included the federal government assuming responsibility for the elderly by establishing Social Security and providing unemployment compensation for those involuntarily unemployed. In addition, the Wagner Act also played a significant role in reshaping the landscape of labor negotiations between employers and workers. By encouraging the growth of labor unions and acting as an impartial mediator in ensuring “fair” labor contract negotiations, this law played a crucial role in restructuring the dynamics of industrial relations.

Expansion of the Federal Government

These transformative measures required a significant increase in the size of the federal government. In the 1920s, the federal government’s average number of paid civilian employees was around 553,000. However, by 1939, this figure had skyrocketed to 953,891 and continued to rise to 1,042,420 by 1940. A shift in the financial landscape underscored the fiscal aspect of this expansion. Federal receipts on the administrative budget, excluding trust funds and debt-related transactions in 1928 and 1929, averaged 3.80 percent of GNP. During the same period, expenditures averaged 3.04 percent of GDP. Federal receipts had increased to 5.50 percent of GDP by 1939, but federal spending had tripled to 9.77 percent. These fiscal metrics are a clear indicator of the expansion of the federal government’s role in the face of economic challenges in the 1930s. The transformative impact of the Great Depression had a profound impact not only on the economy itself but also on the existing economic ideology. The attribution of the depression to a lack of demand led to a paradigm shift in economic thinking. This Keynesian perspective argues that the government has the ability and responsibility to regulate and increase demand to prevent future economic downturns. This Keynesian viewpoint solidified its dominance in economics for at least four decades. While there has been a growing skepticism towards this framework in recent years, it is worth noting that the general public continues to accept and uphold the Keynesian model as a viable approach to economic stability.

The Great Depression profoundly impacted economic thought and policy formation, and economists have not agreed on the factors that caused it. In particular, recent scientific research conducted by leading economists such as Peter Temin, Barry Eichengreen, David Glasner, Ben Bernanke, and others has contributed to a new consensus on the origins of the economic contraction between 1928 and 1929. However, there is still a lack of consensus in explaining why certain countries experienced a longer and more severe contraction phase and the protracted duration of the depression in certain countries, especially the United States. The global economic downturn that began in the late 1920s was a widespread and far-reaching phenomenon with a global impact. Countries like Germany, Brazil, and Southeast Asia experienced economic depression in 1928. This trend continued, and in the early months of 1929, other countries, including Poland, Argentina, and Canada, saw contractions in their economic activity. Specifically, the United States succumbed to this economic downturn in the middle of 1929.

As experts such as Temin, Eichengreen, and others widely explained, the main element that linked these countries during this period of turmoil was their adherence to the international gold standard. The commitment to this monetary framework played a significant role in exacerbating and worsening the economic challenges faced by these countries, as its effects transcended national borders and accelerated the decline of global economic conditions. In 1914, most developed countries adopted the gold standard, setting fixed exchange rates that linked their national currencies to gold and consequently setting fixed exchange rates between those currencies themselves. However, during World War I, European countries deviated from the gold standard and engaged in unlimited money printing. It led to significant price inflation, thus transferring a significant amount of the world’s gold to banks in the United States.

US Commitment to Gold

Throughout World War I, the United States remained firmly committed to the gold standard, steadfastly maintaining the value of gold in dollars. As a result, investors and other entities with gold chose to transfer their gold reserves to the United States, where gold retained its status as a safe and stable investment. After the end of World War I, a few countries, especially the United States, remained on the gold standard, while other countries temporarily adopted fluctuating exchange rates. The global epicenter of international finance experienced a significant shift from London to New York City, which sparked concern among British society trying to regain its edge.

After the war, some countries pledged to reestablish the gold standard by devaluing their currencies. In contrast, other countries emulated the British approach, seeking to return to gold at pre-war exchange rates. Reestablishing the gold standard proved impossible due to the massive influx of currency during the war, making a return to the gold standard vulnerable to significant currency devaluation or price deflation. Furthermore, the U.S. gold reserves had doubled, accounting for about 40 percent of global monetary gold supplies. The increase in U.S. gold stocks resulted in insufficient amounts of internationally available monetary gold to support prevailing exchange rates in various countries. As a result, the significant countries implemented a gold exchange standard, in which the United States and the United Kingdom committed to constantly exchanging dollars and pounds for gold. Additionally, other countries were encouraged to maintain most of their foreign exchange reserves in British pounds or U.S. dollars as part of this established framework.

Gold Rush

The re-establishment of the gold standard in various countries drove the surge in gold demand. The undervalued franc attracted gold inflows after France reverted to the gold standard in June 1928. This undervaluation strategically placed French exports at a more affordable level in foreign currencies, making imports into France relatively more expensive in francs. The increase in French exports and the decrease in imports resulted in a balance in the international balance of payments, which was facilitated by the transfer of gold to France. In contrast to the principles of the gold standard, the French government chose not to use this influx of gold to expand the money supply. At the same time, in 1928, the Federal Reserve System took action to raise the discount rate, which aimed to raise interest rates in the United States. This strategic move was intended to curb American gold outflows and reduce exuberance in the stock market. As a result, the United States experienced a large influx of gold.

As 1929 progressed, countries worldwide experienced a loss of gold from both France and the United States. In response, the governments of these countries began deflationary policies as a preventive measure to curb gold outflows and uphold compliance with the gold standard. These deflationary measures were carefully designed to restrict economic activity and depress price levels, effectively triggering the Great Depression. The beginning of the contraction marked the peak of the stock market boom, culminating in the Wall Street Crash on Black Tuesday, October 29, 1929. It is important to emphasize that although the stock market crashed, the ensuing depression cannot be solely attributed to this event. Furthermore, the stock market crash fails to explain the duration and depth of the extraordinary American contraction.

Varying Depressions

Unlike the United States, numerous countries, notably England, Canada, France, the Netherlands, and the Nordic countries, experienced lesser and shorter symptoms of the depression, frequently ending in 1931. This disparity can be linked to the absence of banking and financial crises in these countries and their removal from the gold standard, which distinguishes them from the United States. On the other hand, the United States experienced a prolonged contraction lasting four years, from the summer of 1929 to the first quarter of 1933. During that time, real Gross National Product (GNP) recorded a substantial decline of 30.5 percent, accompanied by a significant decline in wholesale prices of 30.8 percent and consumer prices of 24.4 percent. This period highlighted the economic challenges the United States had never faced before during the Great Depression.

During previous economic crises, historical data shows a recurring pattern in which wage rates fall by 9 to 10 percent within one to two years. This lower wage adjustment allowed more workers to keep their jobs. However, the Great Depression marked a deviation from this norm, as manufacturing companies chose to maintain wage rates at a near-constant level until 1931, a deviation that has received much attention from commentators for its unusual nature. Against the backdrop of falling prices alongside continued wage rates, the result was a substantial increase in real hourly wages between 1930 and 1931. Although there was some redistribution of jobs, the primary strategy firms adopted was reducing the workforce through layoffs. As a result, the unemployment rate experienced a sharp spike amid falling production levels, especially in the durable goods sector. This sector experienced a stunning 36% decline in production between the end of 1929 and the end of 1930, followed by an additional contraction of 36% between the end of 1930 and the end of 1931.

Hoover’s Commitment

Various factors can cause the lack of wage decline during economic contractions, one of the main reasons being the proactive intervention of President Herbert Hoover. This tendency can be further explained by studying Hoover’s economic policies, which were critical in preventing wage levels from falling. Hoover’s tendency to prevent wage decline stemmed from his disappointment with the wage decline during the 1920-1921 depression. Throughout the 1920s, Hoover consistently advocated for a “high wage” policy, building a foundation to influence his economic strategy. As the late 1920s progressed, a consensus emerged among business leaders, labor representatives, and academic economists. This consensus held that maintaining high wage levels through strategic policy would be a bulwark against economic contraction by maintaining worker purchasing power. President Hoover, aware of this perspective, convened a conference in December 1929 to earnestly encourage leaders in the business, industrial, and labor worlds to uphold prevailing wage and dividend levels. To his satisfaction, he met with receptive audiences, thus strengthening his commitment to maintaining wage levels to stabilize economic conditions.

The enactment of the highly protectionist Smoot-Hawley Tariff in mid-1930 further underscored the commitment to protect domestic businesses from the impact of low-cost imports, which depended on their compliance with sustainable wage levels. As a result, it was not until early 1931 that the increasingly severe deterioration of business conditions forced the boards of directors of some leading companies to begin significant wage cuts reluctantly. These decisions often came amid the resistance of top executives who had previously pledged to maintain prevailing wage levels, emphasizing the significant impact of economic urgency on established commitments. The Smoot-Hawley Tariff emerged as an essential component of President Hoover’s strategic framework. Although there was no broad support for tariff increases, Hoover proposed their implementation in 1929 to alleviate farmers’ challenges. Unfortunately, Hoover’s control over the bill quickly slipped away, ultimately resulting in a legislative action that provided more excellent protection to American businesses at the expense of limited support for the agricultural sector. Of note is the magnitude of tariff increases in the Smoot-Hawley Tariff, as exemplified by the 40 percent increase in the tariff on Canadian winter wheat and the increase in the tariff on scientific glass instruments from 65 percent to 85 percent. The aggregate tariff on dutiable imports experienced a significant jump from 40.1 percent to 53.21 percent.

In addition to the domestic impact, the implementation of American tariff increases triggered clear retaliatory actions, as exemplified by Spain’s implementation of the Wais Tariff. Additionally, the actions of the United States catalyzed to encourage and accelerate the implementation of tariff increase plans by other countries. The global impact of the Smoot-Hawley Tariff underscores its far-reaching impact and role in shaping the dynamics of the international economy during that era. In response to Hoover’s call, companies also heeded the directive to allow the economic contraction to impact profits over dividends. Although dividends in 1930 remained the same as in 1929, undistributed corporate profits experienced a drastic decline from $2.8 billion in 1929 to $2.6 billion in 1930. Although these numbers may seem small when juxtaposed with the US Gross National Product (GNP) figures of $103.1 billion in 1929, they represent a significant proportion.

Bank Runs and Failures

The collapse of the value of corporate securities led to a sharp decline in bank portfolios. As economic conditions worsened and banks experienced increasing losses, bank runs and failures increased. A major early incident of bank runs and bank failures occurred in the Southeast in November 1930, followed by an increase in similar incidents in December. Other bank runs and failures occurred in the late spring and early summer of 1931. After the United Kingdom left the gold standard in September 1931, the Federal Reserve System implemented a relatively significant discount rate increase to stem the outflow of gold. Foreign investors anticipated a devaluation of the U.S. dollar or a deviation from the gold standard, particularly in countries that still adhered to the gold standard, mirroring the actions of the United Kingdom. They liquidated their holdings of dollars or dollar-denominated securities to anticipate the potential devaluation, seeking gold from the United States. The Federal Reserve policy initiative instilled confidence among foreign investors that the United States would uphold its gold commitment.

At the same time, the rise in American interest rates raised the cost of selling American assets in dollars to redeem them with gold. This interest rate surge contributed to the increasing business failures and triggered a significant increase in bank failures. In late spring and early summer of 1932, the Federal Reserve System finally engaged in open market purchases, which offered some relief and potential for recovery to the besieged American economy. Hoover’s fiscal policies played a significant role in exacerbating the downturn. To demonstrate the government’s confidence in the economy, President Hoover initially cut all 1929 income tax rates by 1 percent, buoyed by a continuing budget surplus. However, as 1930 progressed, the surplus turned into a deficit, quickly widening as the economy contracted.

Hoover’s Gamble

At the end of 1931, Hoover felt it essential to recommend a significant tax increase to restore fiscal balance. In 1932, Congress approved this tax increase, marked by a significant reduction in personal exemptions to add to the tax base. At the same time, tax rates significantly increased, with the lowest marginal rate jumping from 1.125% to 4.0%. The highest marginal rate increased from 25% for taxable income over $100,000 to 63% for taxable income over $1 million as a deliberate shift towards a more progressive tax structure was implemented. In hindsight, we now understand that such a significant tax increase did not stimulate economic recovery during a contraction. Reduced disposable household income led to a decline in household spending, further worsening the contraction of overall economic activity. This historic episode underscores the complex relationship between fiscal policy and economic outcomes, emphasizing the need for different and well-calibrated actions during periods of economic volatility.

The Federal Reserve’s expansionary monetary policy ended in the early summer of 1932. After his election victory in November 1932, President-elect Roosevelt did not describe his policy measures or support the policy measures of his predecessor, President Hoover. Additionally, he refrained from explicitly denying the intention to devalue the dollar relative to gold, which was expected to occur after his inauguration in March 1933. At the same time, there was a renewed wave of bank runs and failures, which led to redemptions of American dollars for gold as the gold outflow continued. As the financial landscape worsened in January and February 1933, many state governments responded by declaring bank holidays, which effectively closed down their respective financial sectors. During this critical period, Roosevelt’s national bank holiday went into effect, which successfully halted the ongoing bank runs and failures, ultimately ending the ongoing economic contraction.

Bank Failures

Between 1929 and 1933, a significant and disturbing phenomenon occurred in the financial landscape of the United States, as 10,763 of 24,970 commercial banks failed. This sobering event symbolized a broader economic downturn marked by a substantial decline in the money supply, which plummeted by 30.9 percent from its 1929 level. The primary cause of this sharp decline can be attributed to changes in public financial habits, marked by a simultaneous increase in currency holdings and a decrease in savings. During this period, the banking sector faced the increasingly adverse effects of declining cash reserves and the accumulation of absolute excess reserves. Despite concerted efforts by the Federal Reserve System to ease the crisis by adding to bank reserves, these measures proved inadequate and insufficient to stem the dramatic decline in the overall money supply.

Businesses and consumers felt the impact of this financial turmoil heavily. Businesses experiencing a contraction in credit lines and dwindling cash reserves due to bank closures faced significant hurdles. At the same time, consumers were also facing the unsettling reality that their savings were trapped in a protracted bankruptcy process. The confluence of these ominous situations caused a contraction in spending, worsening a lousy situation and contributing to the deepening of the economic collapse during the Great Depression. The end of the national bank holiday marked the resolution of the prolonged banking crisis and ushered in a period of recovery from April to September 1933. This momentous event not only served to ease the existing economic turmoil but also began the recovery of public confidence in both financial institutions and the overall economic system.


After taking office, President Roosevelt introduced a transformative vision known as the New Deal, which aimed to address the American people’s challenges. However, there was a misperception among his advisors that excessive competition had led to overproduction, thus contributing to the onset of the Great Depression. Despite the President’s good intentions, this misunderstanding hampered the design of effective economic recovery strategies. The core of the New Deal was legislative initiatives such as the Agricultural Adjustment Act (AAA) and the National Recovery Administration (NRA). These measures were strategically designed to limit production levels while raising wages and prices, aiming to stimulate economic recovery. The government’s commitment to reducing production, which seemed to be aimed at fighting the effects of the depression, ignored the inherent contradiction in trying to alleviate economic hardship by further limiting output.

In its efforts to recover, the government has ignored the fundamental impracticality of universally raising real wages and price levels. Unfortunately, the fundamental impossibility of achieving such a comprehensive increase was ignored, highlighting the critical need for oversight in implementing New Deal initiatives. The Agricultural Adjustment Administration (AAA) immediately began a program aimed at slaughtering six million young pigs and limiting the pig population to reduce pork production, raising market prices. At the same time, recognizing the surplus in cotton planting, the AAA took steps to address this issue by rewarding cotton farmers who plowed under less than a quarter of the forty million acres of land that had been planted with cotton to reduce overall marketed production and encourage an increase in commodity prices. Notably, most of these payments were directed to landowners rather than tenant farmers, thus creating deplorable conditions for the tenant farming group. Although there was an understanding that landowners were expected to share the payments with their tenant farmers, there was no legal obligation to enforce the sharing, resulting in most tenant farmers, particularly those of African-American descent, being more vulnerable to discriminatory practices. After extensive under-planting, they received no compensation whatsoever and experienced reduced or no income from cotton production.

When persuasive measures proved ineffective in convincing many independent farmers to reduce production voluntarily, the federal government considered implementing mandatory production cuts and procuring surplus products to effectively withdraw them from the market, thereby putting upward pressure on prices. The National Recovery Administration (NRA) represented a significant effort to cartelize American industry, a massive experiment in economic coordination. In each sector, a specific code authority was formed with the primary purpose of regulating production and investment, as well as standardizing company practices and costs. This comprehensive framework was explicitly designed to raise prices while limiting, rather than increasing, production and investment.


After implementing the NRA codes in the fall of 1933, the anticipated recovery, which had been promising during the summer, experienced a marked slowdown, resulting in limited economic activity growth from the fall of 1933 to the middle of the summer of 1935. Implementing the NRA codes proved inconsistent, contributing to the growing controversy over the codes’ efficacy. In smaller, more competitive industries, companies complying with existing codes declined. On May 27, 1935, a turning point occurred when the Supreme Court controlled the NRA unconstitutional, followed by a similar ruling on January 6, 1936, regarding the Agricultural Adjustment Act (AAA). Following removing the restrictions imposed by the NRA, American industry experienced a significant resurgence with the expansion of production. By the fall of 1935, a rapid economic recovery was underway, marking the end of past constraints and a new era of growth for the country.

The introduction of the National Recovery Administration (NRA) initially resulted in a significant increase in both monetary and actual wage rates, reflecting the collective efforts of businesses to comply with the comprehensive codes set forth by the NRA. However, as enthusiasm among businesses for complying with the NRA began to wane, the trajectory of monetary wage rates showed only modest increases. In contrast, average accurate wage rates experienced a slight decline in 1934 and early 1935. At the same time, a significant proportion of workers chose not to affiliate with independent labor unions, which contributed to the dynamics that facilitated economic recovery during this period. Although these developments seemed successful, Senator Robert Wagner, dissatisfied with the perceived lack of labor union influence, took decisive action in the summer of 1935 by drafting the National Labor Relations Act (NLRA). This legislative initiative sought to empower labor union members to force other workers into their unions through a clear majority vote, effectively creating a monopoly over the workforce. Although internal divisions still existed, and the Congress of Industrial Organizations (CIO) formulated a strategy to exploit the new law’s provisions, the practical implementation of the NLRA was delayed until the end of 1936.

CIO Campaigns

In early 1937, the CIO’s extensive organizing campaign reached a significant milestone, leading to union recognition at many leading companies. Specifically, collective bargaining agreements increased hourly wage rates, accompanied by the establishment of overtime wage rates, thus driving the actual labor cost per hour to unprecedented levels. This transformative phase underscored the development of labor relations, illustrating the complex interplay between legislative measures, industrial strategies, and the overall economic dynamics of the era. Several additional factors contributed to the increased labor costs during this period. One crucial factor was implementing the new Social Security tax in 1936 and 1937. In addition, President Roosevelt approved a new tax on undistributed corporate profits, hoping that this action would encourage companies to liquidate their undistributed profits in the form of dividends.

Although some companies complied with the regulations by distributing some of their undistributed profits through increased dividends, other companies, particularly those in the steel industry, chose to allocate bonuses and raise wage rates to avoid paying additional taxes on their undistributed profits. The combination of these three policies resulted in a significant spike in actual labor costs per hour, but increased demand and prices did not accompany it. When faced with these economic conditions, businesses responded by limiting production and laying off workers to mitigate the negative financial impact. The complex interaction of these policies underscores the complex dynamics affecting the labor market and the behavior of businesses during this historical period.

Federal Reserve

The second significant policy change concerned monetary policy. After the end of the contractionary period, financial institutions began to practice maintaining large amounts of excess reserves in anticipation of potential bank runs. Recognizing the potential consequences of utilizing these excess reserves for increased lending, officials at the Federal Reserve System realized that this action could trigger a rapid increase in the money supply, leading to inflationary pressures. Their analysis showed a widespread distribution of excess reserves among banks, and they concluded that this phenomenon was caused by weak loan demand. Given the circumstances, which included banks’ reluctance to borrow at the discount window and the Federal Reserve’s lack of marketable bonds for open market sales, the only instrument available to reduce surplus reserves was a novel strategy, namely raising reserve requirements. Over three consecutive increases between August 1, 1936, and May 1, 1937, the Federal Reserve systematically doubled reserve requirements in all categories of member banks. This strategic move was successful in eliminating most of the excess reserves, particularly at large banking institutions. In response to the difficulties faced in the early 1930s, banks began replenishing excess reserves, which required a reduction in the amount of loans.

Within eighteen months, excess reserves had returned to near pre-adjustment levels, simultaneously decreasing the overall money supply. The complex dynamics of these policy changes underscore the delicate balance that the Federal Reserve System maintained in its efforts to regulate excess reserves and, consequently, influence the broader monetary landscape. In June 1937, the halt in the recovery, marked by a decline in the unemployment rate to 12 percent, signaled the end of the previous economic progress. This slowdown was triggered by the implementation of two important policies: the increase in labor costs and the contractionary monetary policy, which contributed to the further contraction of the economy. Although the contraction phase ended in June 1938, the following recovery showed sluggishness. Throughout 1938, the average unemployment rate reached 19.1 percent, in sharp contrast to the figure in 1937, which averaged 14.3 percent. Even in 1940, high unemployment continued, averaging 14.6 percent.

Competing Explanations

The slow pace of recovery from the Great Depression has been the subject of much analysis by economists, with a consensus emerging about the influence of various factors that contributed to this protracted economic recovery period. One group of academics, such as Gary Dean Best, Richard Vedder, Lowell Gallaway, and Gary Walton, argue that the National Recovery Administration (NRA) and monetary policy significantly hamper recovery. In contrast, the opposing view, supported by Milton Friedman, Anna Schwartz, Christian Saint-Etienne, and Barry Eichengreen, highlights Roosevelt’s fluctuating policies and implementation of new federal regulations as impediments to economic revival. The National Recovery Administration (NRA), a New Deal program that became a focus of scrutiny, has drawn much criticism from scholars such as Gary Dean Best, Gene Smiley, Richard Vedder, Lowell Gallaway, Gary Walton, and Michael Weinstein. Discredited explanations have been replaced by a different analysis from E. Cary Brown, Larry Peppers, and Thomas Renaghan, such as Alvin Hansen’s assertion that the United States had run out of investment opportunities, which emphasizes the constraining impact of federal fiscal policy on the economy’s return to full employment.

Michael Bernstein contributes to this discourse by stating that investment challenges hinder recovery, arguing that well-established old industries struggle to generate sufficient investment while emerging and developing industries face obstacles in securing funds amidst a depressed economic condition. Furthermore, Alexander Field introduces the idea that uncontrolled housing investment during the 1920s significantly constrained housing investment in the 1930s, thus adding another layer to the complex factors influencing the slow recovery from the Great Depression. A highly cohesive explanation, incorporating various thematic elements, is encapsulated in the “regime uncertainty” concept proposed by economic historian Robert Higgs. Higgs argues that the implementation of Roosevelt’s New Deal sparked concerns among business leaders regarding protecting the “regime” of private property rights related to their capital and corporate income flows. Consequently, their inclination to invest in long-term assets diminished. Roosevelt’s initial suspension of antitrust laws aimed to foster cooperation in government-sponsored cartels, but subsequent changes included enforcing antitrust laws against companies involved in such collaborations. The imposition and repeal of new taxes, increased business regulations, limitations on autonomy in business operations, and laws restricting freedom in hiring and employing labor contributed to this regime’s uncertainty.

Public opinion surveys in the late 1930s validated these concerns, with a majority expressing belief in obstacles to economic recovery imposed by the Roosevelt administration. Specifically, polls in March and May 1939 revealed that 54% and 53% of respondents, respectively, considered the government’s attitude toward business hindering recovery. Moreover, 56% of respondents anticipated an increase in government control over business in a decade, compared to only 22% predicting a decrease in control. A significant 65% of surveyed executives believed that Roosevelt’s policies had significantly undermined business confidence, impeding recovery. The prevailing sentiment initially deterred many companies from engaging in wartime contracts, as the majority perceived the U.S. government as highly anti-business, hindering collaborative efforts with Washington regarding armaments. A commonly argued contradiction is that World War II played a crucial role in revitalizing the American economy from the upheavals of the Great Depression. Indeed, the unemployment rate experienced a significant decrease of 7,050,000 people between 1940 and 1943; however, this was also accompanied by an increase of 8,590,000 people in military service. Contrary to conventional wisdom, the alleviation of unemployment was more attributable to the military draft process than to organic economic recovery.

Contradictions in Statistics

The increase in real Gross National Product (GNP) poses similar challenges in analysis. Primary estimates depict a contraction in consumer spending, indicating a decline in consumer financial well-being during wartime. At the same time, business investment experiences a decrease, underscoring the complexity of understanding economic progress during times of war. Furthermore, government expenditures on the war surpassed the growth of real GNP. However, this statistical representation needs to be revised due to the acknowledgment that government assessments, particularly regarding ammunition spending, increased with the outbreak of the war. The comprehensive implementation of price controls, rationing, and government oversight of production further obscures the significance of data related to GNP, consumption, investment, and price levels.

Many questions arise regarding establishing a consistent price index, given the government mandate that eliminated the production of certain durable consumer goods. The appropriateness of commodity prices, such as gasoline, becomes ambiguous when prices are artificially set and must be rationed to address shortages resulting from imposed price controls. Similarly, the significance of the price of new tires becomes challenging to understand when consumer access to new tires is restricted. For consumers, the resurgence occurred with the end of the war, allowing them to obtain once again products that were previously unavailable during wartime and financially unattainable in the 1930s. The recurrence of a similar phenomenon to the Great Depression is still possible, although the likelihood is small. This prospect is diminished by the slim chance of the Federal Reserve taking a passive stance amid a sharp decline in the money supply, as seen in that historical event. The accumulation of wisdom gained from the post-1930s period equips contemporary policymakers with insight, enabling them to formulate strategic decisions to prevent the recurrence of such a severe economic depression.


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