What Ended the Great Depression? (original) (raw)
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THE JOURNAL OF ECONOMIC HISTORY What Ended the Great Depression
This paper examines the role of aggregate-demand stimulus in ending the Great Depression. Plausible estimates of the effects of fiscal and monetary changes indicate that nearly all the observed recovery of the U.S. economy prior to 1942 was due to monetary expansion. A huge gold inflow in the mid-and late 1930s swelled the money stock and stimulated the economy by lowering real interest rates and encouraging investment spending and purchases of durable goods. That monetary developments were crucial to the recovery implies that self-correction played little role in the growth of real output between 1933 and 1942. Between 1933 and 1937 real GNP in the United States grew at an average rate of over 8 percent per year; between 1938 and, 1941 it grew over 10 percent per year. These rates of growth are spectacular, even for an economy pulling out of a severe depression. Yet the recovery from the collapse of 1929 to 1933 has received little of the attention that economists have lavished on the Great Depression. Perhaps because the cataclysm of the early 1930s was so severe, modem economists have focused on the causes of the downturn and of the turning point in 1933. Once the end of the precipitous decline in output has been explained, there has been a tendency to let the story drop.1
U.S. Economics Holy Grail – The Great Depression
Business and Management Research, 2013
What caused the U.S. Great Depression-money contraction or credit instability or banking fragility or price declines or what? Of course, there was no single 'cause' to the depression. Human society is not a mechanism. All these factors were contributory factors, which in their interaction changed the economic state of the U.S. society from growth in the 1920s into depression of the 1930s. It was stasis changing events which altered the U.S. societythe 1929 stock market crash and three successive years of bank panics in 1930, 1931, 1932. Central to this stasis change was an unstable financial subsystem , with a 'fragility of the banks' and an 'instability of credit'. This is one of the big questions about economic theory. How are economies inherently stable or unstable? In a cross-disciplinary framework, we analyze the classic U.S. example of an unstable economy-the Great Depression. Why did the bank panics follow upon the financial bubble of the stock market? How did these panics set the conditions for insignificant economic recovery after 1933? We use a cross-disciplinary analytic framework to examine the multiple factors in explaining, so as not to be limited by a requirement for a 'single explanation'.
Monetarist Interpretations of the Great Depression: An Evaluation and Critique
1978
The paper examines two different aspects of macroeconomic behavior in the United States during the period between 1929 and 1941 --both the proximate determinants of the severity and duration of the slump in nominal income, and the factors influencing the division of those changes in nominal income between changes in the price level and in real output. The first question, the sources of nominal-income movements, has been the subject of much recent controversy and debate. the statistical analysis in the paper suggests that both extreme monetarist and nonmonetarist interpretations of the decade of the 1930s are unsatisfactory and leave interesting features of the data unexplained. The paper takes the intermediate view that both monetary and nonmonetary factors were important, and places considerable emphasis on the interaction among construction, consumption, the stock market, and the Hawley-Smoot tariff, in its explanation of the severity of the first two years of the contraction.
What Ended the Great Depression? Reevaluating the Role of Fiscal Policy
Economics Working Paper Archive, 2011
Conventional wisdom contends that fiscal policy was of secondary importance to the economic recovery in the 1930s. The recovery is then connected to monetary policy that allowed non-sterilized gold inflows to increase the money supply. Often, this is shown by measuring the fiscal multipliers, and demonstrating that they were relatively small. This paper shows that problems with the conventional measures of fiscal multipliers in the 1930s may have created an incorrect consensus on the irrelevance of fiscal policy. The rehabilitation of fiscal policy is seen as a necessary step in the reinterpretation of the positive role of New Deal policies for the recovery.
The Effects on the Aggregate Demand and Aggregate Supply During the Great Economic Depression
Journal of Economics, 2016
The Great Depression of 1929 created significant consequences for the US economy and world economy that are detected through serious changes in output and prices. It contributed to put greater emphasis on aggregate demand and aggregate supply. Many economists agreed that in addition to monetary factors major impact on the crisis had also non-monetary factors. Numerous studies have indicated that even the gold standard played an important role in reducing output and the price level. This paper attempts to highlight key segments, such as the wrong monetary policy, the gold standard, neglected banking problems, political pressure aimed at relaxing the monetary policy as areas that have made mistakes when looking a way out of the crisis. The critics of such thesis believed that the tighter monetary policy was not strong enough to cause so far-reaching consequences and expressed serious doubts that the reduced money supply is the real cause of the collapse of the national product and pri...
The Journal of Economic History, 2011
Technology shocks and declining productivity have been advanced as important factors driving the Great Depression in the United States, based on real business cycle theory. We estimate an improved measure of technology for interwar manufacturing, using data from the U.S. census reports. There is clear evidence of increasing returns to scale and we find no statistical proof that technology shocks led to changes in hours worked or other inputs. This contradicts a key prediction of real business cycle theory. We find that increasing returns to scale are not due to market power but to labor and capital hoarding.