What ended the Great Depression? When I was teaching high school history, and when I was a high school student, the answer to this question was simple--World War II. However the answer is a bit more involved than that.
The Great Depression was the worst economic crisis in US history. In April 1939, almost a decade after the economic crisis began, more than one in five Americans still could not find work. When World War II broke out, more than 12 million Americans were sent into the military and a similar number of Americans found employment in defense-related jobs. Due to this, historians often cite the massive wartime spending as the singular event that ended the Great Depression. Many economists, however, claim that World War II did not bring an end to the Great Depression, arguing instead that the U.S. traded debt for unemployment--as necessary as it was to winning the war, the actions of building war goods and outfitting soldiers become a major financial burden. According to Burton W. Folsom, writing on the Foundation for Economic Education website, "the expense of funding World War II hiked the national debt from $49 billion in 1941 to almost $260 billion in 1945. In other words, the war had only postponed the issue of recovery."
So if the start of World War II was not what brought about the end of the Great Depression then what did? According to a 2013 article in Forbes by Peter Ferrara, the end of the war truly ended the Great Depression. In the article, Ferrara states, "The Depression was actually ended, and prosperity restored, by the sharp reductions in spending, taxes, and regulation at the end of World War II..." By creating freer markets, balanced budgets, and lowering taxes unemployment rates dropped and the Great Depression was over.
But wait, there's more...
Historians will also argue that President Franklin D. Roosevelt's New Deal policy is also responsible for pulling the U.S. out of its economic slump.
The New Deal policy was a series of programs, public works and projects, financial reforms, and regulations enacted between 1933 and 1939. The New Deal policy was a direct response to needs for economic relief, reform, and recovery from the Great Depression.
When FDR took office in 1933, he acted swiftly to stabilize the economy and to create jobs and reforms. Over the course of eight years, the government issued a series of New Deal programs such as the Civilian Conservation Corps (CCC), the Works Progress Administration (WPA), the Securities and Exchange Commission (SEC), and others which would fundamentally change the U.S. government by expanding its role in the economy.
Roosevelt took many steps to attempt to bring the economy out of its slump. He declared a four-day bank holiday to stop people from withdrawing their money from banks; he urged Americans to put their savings back into banks; Congress passed his emergency banking act which reorganized banks; he urged Congress to end prohibition; Congress passed a bill that paid commodity farmers to leave their fields fallow to end agricultural surpluses and to boost prices; his National Industrial Recovery Act guaranteed workers the right to unionize and utilize collective bargaining; and he passed over a dozen other major laws all within his first 100 days in office.
Despite these efforts the Great Depression continued. Unemployment persisted, the economy remained on unstable footing, farmers continued to struggle in the areas ravaged by the Dust Bowl, and people grew more desperate for lasting change. As a result, Roosevelt issued to the Second New Deal and 1935 which launched a more aggressive series of federal programs.
In April 1935, the Works Progress Administration was established to provide jobs for those who were unemployed. The WPA focused on building things such as post offices, bridges, schools, highways, and parks as well as gave work to artists, writers, theater directors, musicians, and others in the Arts. Similarly, back in 1933, the Civilian Conservation Corps was established to provide young unmarried men with jobs. CCC jobs are very labor-intensive but had the goal of preserving America's natural resources, including work on various national parks. In July 1935, the National Labor Relations Act, more commonly known as the Wagner Act, created the National Labor Relations Board to supervise union elections and prevent businesses from treating their employees unfairly. In August 1935, FDR signed the Social Security Act into law which guaranteed pensions to millions of Americans, set up unemployment insurance, and stipulated that the government would help care for dependent children and the disabled.
On December 7, 1941 the Japanese bombed the Navy base at Pearl Harbor in Hawaii and the U.S. entered into World War II shortly after. The war effort did stimulate American industry and thus helped to end the Great Depression.
In summary, there are multiple methods that were used to bring the American economy out of the Great Depression--FDR's New Deal policies, creating freer markets, balancing budgets, lowering taxes, and the stimulated wartime economy all brought an end to the Great Depression.
Next time here on the blog, we're going to examine the beginning of World War II.
