As a free trader, I believe much of the Depression was caused by the Republican’s excessively protectionist measures (especially under Harding & Hoover). However, this was not the only cause, of course. Regulation was also necessary, and lack of it probably contributed to the depression.
War economy was probably the cause of the Depression’s end. While the New Deal was good in that it gave people hope, it did not end the recession. During the 1938, the Depression worsened. Unemployment rose by 5%. Since the Depression ended during WWII, I think that war economy is the most convincing explanation.
I believe that Federal Reserve incompetence was the primary trigger for the Great Depression. It was exacerbated by Congress and the Hoover administration, which raised taxes and passed the Smoot-Hawley tariff which helped to cripple international trade.
Monetary policy in 1929 was restricted to reserve requirements and the “discount window”, since open market operations were impractical under the gold standard. The power of the other tools was poorly understood. In addition, the Fed had been badly designed in 1913 with power dispersed among the 12 regional banks. The New York Fed emerged as the de facto national central bank during the 1920’s under the leadership of Benjamin Strong, but Strong died in 1928 and his successors were clueless.
They failed to raise interest rates to choke off the speculative bubble which emerged in 1929, and they failed to lower them even while the Depression was deepening, unemployment was soaring, and banks were failing by the hundreds. The record of private central bankers during the previous panic in 1907 was far superior. The aforementioned tax and tariff increases made everything much worse.
Basically in order to have a healthy economy you need capital to be moving around. And in order for people to risk borrowing and lending capital they have to have some degree of cofindence in the future. In a depression, everyone gets worried and decides to hang on to what they’ve currently got and your economy stagnates. People have to regain their cofindence and once again start taking financial risks for there to be financial growth. The New Deal programs did succeed overall in doing this to some extant so they were beneficial.
As for the statement of World War II ending the Depression, I would say that is too simplistic. The federal government “bought” the U.S. temporarily out of the depression by running a debt that was greater than the whole GDP. The U.S. government would have easily collapsed in late 1940s if it had not been for the growth in the U.S. economy causes by the exports. It is truly the exports from America after the war that ended the Great Depression.
World War II didn’t, in itself, change the economic climate in America. If not for exports, Americans would have seen any economic gains made during the war years offset by rising taxes. The government debt would have cause a tight money supply continuing the Depression or the Federal government would have printed more money and cause runaway inflation… which would have cause a different type of depression.
An economy that would have been “repaired” by war was Germany’s. Prior to Hitler’s rise to power in 1933, the Weimar Government set up an international barter system to deal with poor economic conditions in Germany. The Nazis exploited this system by running up large international debts, not only in Europe but around the globe. If no war in Europe had taken place by 1942 or 1943, Germany might well have been bankrupt. Germany needed war gains to pay its foreign debt. So if Germany had won, then the war would have been the “true” reason that ended the German Depression of the early 1930s.
The US fiscal & monetary policies have long been the most convincing culprit, in my mind. It is not a particulary popular theory, as it is a bit too detailed to warrant inclusion in any basic academic course. However, I’ve never heard any particularly credible refutation of it.
I should probably add that the banking regulations of that era also contributed to the run on the banks that many folks associate with the Depression.
In school, specifically, my economic history class, taught us that the Great Depression started because of too protectionist of an economy and too many protectionist practices, coupled with (i.e. equally to blame) a monster speculative bubble in the stock market and no financial tools/protections to prevent the resulting effects of the bubble bursting.
The simple answer to why it ended has always been the War Economy. The New Deal programs were not only illegal, but would have bankrupted the economy. However, they did give a ton of hope and got Americans to go back and work and try to improve their lives and faith in the economy again. A re-tooled Fed (super-boring detail that I forgot and am too lazy to look up) and a more open market economy, coupled with bolstered hope, good infrastructure, industialized society, and education people carried America into the Fabulous 50’s.
The law is whatever the law is. If Congress passes a law than it’s legal by definition. Granted, the Supreme Court can overturn a law which conflicts with a different law, and this was done for some New Deal programs, but the majority of these programs were legal.
As for bankrupting the economy, do you feel the United States collapsed in 1942? The government spent a lot more money fighting World War II than was ever spent on the New Deal, so obviously there was enough money there to be spent without bankrupting the economy. The New Deal programs arguably might not have been a good way to spend money but it wasn’t an impossible way.
After WWI the U.S. exported large amounts of finished goods to Europe. The U.S. also extended billions in monetary credit. These factors cause a speculative market in America that carried the U.S economy through the 1920s. In the Spring of 1929 profiteers started leaving the stock market, causing stock values to fall. This lead to the stock market crash of October 19, six months later. The result of the crash was major drop in consumer confidence which damaged the American economy. Under this “cloud” American banks were less likely to loan money abroad, which caused a recession in Europe. This in turn, crippled American exports.
The response from but sides of the Atlantic was protectionism. The American “Great Depression” is generally considered to have started with the Crash of 1929, which was before protectionism became the policies internationally. Protectionism was a response to the Depression not the cause of it. As a Libertarian, I would love to blame the Depression on protectionism, but the facts aren’t there. What I can say about protectionism is…it made a bad situation worst.
As I said in my last post, exports is the key. America came out of WWII as the world’s dominant exporter. The U.S. economy thrived until that “bubble” burst again in the late 1950s.
Interestingly simple, likewise economic view of the law.
Congress enacts laws. The SC finds them unconstitutional, thus illegal – slight semantics, though important to know. The main point, though, that I wanted to make is that I remembered learning that a majority of them were unconstitutional, or the main bulk of them (the ones which had more, for lack of a better word, meaning) were struck down as unconstitutional, to make the remaining laws pretty innocuous.
What do you mean by collapse? Do you mean the further non-existence of the US as created by the 1776 Constitution? Obviously, no. Do you mean the economy collapsed? How? Like the Weimar Republic? Like Argentina? Like South Korea in the mid-late 90’s which had to be saved by the IMF? Let me be more specific: If the US didn’t get into war and won; or if the global economy did not pick up, and assuming the existing means to pay back loans and the existing economy which allowed for such transactions to take place were still in place, then, quite surely, the US would have been bankrupt. The US government would still in place, but the economy would revert back to something resembling the economy during the War of Independence, and the living conditions quite possibly would have reverted back to that as well (just with a bit more technology).
Uh, yeah, that’s the precursor for hyperinflation. Where do you think the government found all this money? It printed it, some borrowing. Luckily, the economy we had then was able to handle that. Being in war also helped distract the populace from the unfavorable economic conditions, like sending most of the men off to fight, creating war machines and a fungible war industry. Without the war, economic collapse (like Weimar Republic scale) would have been inevitable.
:rolleyes: There is no “1776 Constitution.” And if you had written, “1789 Constitution,” that still would be a thoroughly dumbass thing to say. The very idea of the U.S. as an association of sovereign republics rather than a nation-state came to an end in 1865, and good riddance.
Persistence of Great Depression:
See Ben Bernanke’s work on NIRA. Basically, even after the formal program was dismantled, collusive arrangements were permitted within industries and wages were kept at artificially high levels, limiting new hires. Here’ a PDF file on a modern treatment: http://www.econ.yale.edu/seminars/echist/eh02/ohanian-021008.pdf
This 2nd link may belong in the New Deal thread, but the New Deal also encompassed WPA, Social Security, the FDIC and other generally beneficial programs.
As I understand it. among causes of the GD (not this GD, the other GD) is the fact that the US economy expaded its production without expanding its market. During WWI, the US greatly exanded it agricultural and manufacturing bases. With war’s end, the broke Europeans stopped buying stuff from us, but the marginal land stayed in production, causing commodity prices to fall (insert film of cans of milk being spilled on the street in protest here). The manufacturing base switched over to producing consumer goods for the middle class, and this triggered a lot of speculative stock-buying (a lot of it “on margin”). But the factory owners did not pay their workers middle-class wages, so few of them could afford to buy the kinds of goods they were making. Once every middle class household had a vacuum cleaner and a radio these things stopped selling and started piling up, resulting in a collapse of profits and a bursting of the speculative bubble.