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01/30/2012

The Great Depression


The Great Depression

            The Great Depression is considered as one of the darkest times of American history. It is considered as a traumatic experience of those who lived through it and has a profound impact on the generations after. The Great Depression is also considered as one of the dominant forces that molded the United States into what it is today. According to Himmelberg (2001), the depression brought great hardship and suffering to millions of Americans and it was instrumental in the shaping of America’s economic, political, and social spheres. Himmelberg (2001) adds that “the depression made a strong impact on people’s everyday lives because so many suffered from economic hardship and insecurity”.

            The Great Depression can be seen as a “peak” of a business cycle. Depressions occur when there is not enough demand for all the goods and services that an economy produces. Inventories of unsold goods build up, and manufacturers cut production by laying off workers and buying less of the raw materials that they use to make their products. Service providers, from doctors to hair stylists, have fewer clients, and their incomes fall. Most economists believe that such falling demand is a normal part of what is commonly called a "business cycle." Demand for two kinds of goods--durable goods and capital goods--tends to fluctuate, and these fluctuations drive the cycle. Durable goods are consumer goods that last a long time, such as automobiles, appliances, and home furnishings. Demand for such goods increases when consumers are feeling prosperous; it falls when they are not feeling prosperous. Many economists also believe that durable goods markets can be "saturated"--that there are, in other words, times when most consumers have purchased the durables that they want and have no desire to buy more. At such times, demand obviously will fall. Capital goods are goods such as factory buildings, machinery, and equipment. These are goods that are used to produce other goods. Business firms invest in such goods only when they feel that consumers will buy what is produced by the new capital goods. When that prospect seems doubtful, demand for these goods falls.

Events during the mid-1920s illustrate the high point ("peak") of a business cycle. In these years, there was a great increase in the number of Americans who bought houses, home furnishings, appliances, and automobiles. Towns and cities were growing rapidly, and state and local governments spent money to provide roads, sidewalks, and water and sewage services. The homes of town dwellers were connected to electricity and telephone services. Spending by consumers, business firms, and state and local governments created plentiful, high-paying jobs. In the late 1920s, demand was beginning to soften for houses and automobiles. Cities and states had completed most of the efforts they had undertaken to provide services for their citizens. In the summer of 1929, total spending in the American economy was falling, and business firms began to cut production. October's stock market crash--signaling to shareholders that business profits would fall--probably made the recession worse. There was a loss of wealth and, as a result, people spent less, but the crash did not cause the recession. After the crash, the economy seemed to recover and the people were optimistic. However, the recovery of the economy was short-lived. At first, most observers thought that the recession would be temporary. Stock prices began to rise again, and the unemployed, aided by local and private charities, were assured that "Prosperity is just around the corner"--that is, the downward trend of the business cycle would hit bottom and the economy would start to recover. But this did not happen. Total demand stayed low. Business firms continued to lay off employees, and many firms went bankrupt. Then, in 1930, banks began to fail in large numbers, wiping out the savings of potential buyers and further lowering demand. State and local relief funds were soon exhausted, and many laid-off workers and their families, who had only recently led comfortable lives, now faced hunger and even homelessness (Caldwell & O’Driscoll, 2007).

The Years before the Great Depression

            The Great Depression devastated the whole world in the 1920s up to early 1940s. It is considered as one of the longest and most wide-spread economic depression in the 20th century. The United States, was one of the most severely hit by economic depression that started in late 1920s and ended in the early 1940s.

            The onset of the Great Depression came with a shocking suddenness. In the space of a few days in October 1929, values on the New York Stock Exchange abruptly collapsed, wiping out the heady optimism of the “great bull market: of 1928-1929 and the seeming invincibility of Republican prosperity. Several years before the Great Depression, the American economy was doing good, considering that it was recovering from World War I. Stock values had risen steadily and with a nearly unbroken pace since 1922. After the World War I, the United States experienced an economic depression. World War I according to Himmelberg (2001), had placed great demands on the American economy, even before direct American participation began in 1917. Excessive demand led to a steep inflation of prices and set the economy up for an equally sharp deflation when the high rate of government spending rapidly slackened by 1920. By late 1921, the signs of recovery were clear. A long period of prosperity had begun, marred only by brief slowdown in the growth trend and by the failure of certain sectors of the economy, such as agriculture, to keep pace. The economic recovery of the 1920s was seen as a good sign by the people. People from the higher levels of the society as well as the white-collar and blue-collar workers felt the growth of the economy. Production and consumption of the goods that are the stuff of modern industrial economy came into their own in the 1920s.  

            It was the newer, highly innovative industries that fueled the expansion of the 1920s. During the decade auto registration rose from 9 to 27 million as the automobile industry, led by Henry Ford’s highly affordable Model T, put ownership within the reach of a mass market. Electrical goods too flooded markets from new American factories as refrigerators replaced the “ice-box” in a high proportion of urban homes, brooms gave way to vacuum cleaners, and radios brought entertainment, sporting events, and news into the home. The enormous increase in such products and the rapid expansion of the automobile indicated that higher incomes and more modern consumption patterns were filtering down from the well-to-do through the middle class and the working class. Advertising begun to flourish and adopted newer and more high-powered techniques for manipulating consumers.

            Although the people became optimistic for the future, the prosperity of the 1920s was short-lived. National income grew rapidly, but the share of the increase going to those in the upper two-fifths of the income scale was far higher than for those lower down on it. Blue-collar workers enjoyed relatively stable employment, but their wages grew only modestly, and the income of family farmers did not grow commensurately with that of the urban middle class.

What Fueled the Great Depression?

            In order to understand the cures that ended the Great Depression, it is important that we should first look at the causes of the Great Depression.

            Many theories have been developed to explain the occurrence of the Great Depression. One of the most popular among these is the Keynesian model, named after John Maynard Keynes, a very famous economist. The Keynesian explanation of the Great Depression according to Knoop (2004) centered on a major decrease in aggregate demand caused by sharp falls in investment and consumption. The decrease in investment and consumption were the result of a huge decline in expectation. This fall in aggregate demand had real effects on the economy because of wage inflexibility in the labor market (p. 144). According to the Keynesian explanation of the Great Depression, the decline in the total demand was so severe that adequate demand could only be restored only by large increases in government spending (Caldwell & O’Driscoll, 2007).  

Another explanation was put forth by the supporters of the Monetarist theory of business cycles. Monetarists argue that the Great Depression was caused by a large decrease in the money supply that occurred because of the Federal Reserve’s ignorance and incompetence. This decline in the money supply reduced the aggregate demand for two reasons – a lower money supply reduced aggregate spending and a decrease in the money supply reduced liquidity in the banking system, leading to banking failures and high real interest rates. The decline in financial intermediation that resulted led to further reductions in spending, investment, and aggregate demand (Knoop, 2004). Caldwell and O’Driscoll (2007) supported this view, arguing that the length and severity of the Great Depression resulted primarily from the unwillingness of the Federal Reserve System to prevent bank failures and to maintain a large enough money supply.

According to Gordon and Wilcox (1981) there were different factors that led to the Great Depression. The Great Depression can be traced to a series of domestic spending shocks, both monetary and non-monetary. The initial decline in output during the 1929-1931 period can be traced to a decline in consumption and residential investment expenditures. Friedman and Schwartz (1963) argued that the Great Depression resulted from the perverse actions of the Federal Reserve in letting the money supply decline drastically. Eichengreen (1992) asserted that the Great Depression resulted from a shift of the aggregate demand curve to the left and the impact of the monetary contraction was transmitted worldwide via operation of the “Gold Standard”. The gold standard was believed to provide an equilibrium by means of a simple mechanism which seemed to work as if governed by a law of nature. Two of its supporters such as Hume (1752) recommended the free flow of the precious metals. According to the Gold Standard’s supporters, if precious metals flowed out of a country they would thereby lower the prices and their inflow would increase the prices elsewhere, which would then lead to their flowing back to countries where the prices were lower. This process would work best without any interference. This proved to be an illusion. According to Rothermund (1996) the Golden Standard did nit work automatically at all but depended on the existence of a powerful lender of last resort, an institution which was able to ensure the liquidity and stability of the world market.

Another factor that was often cited for the fall of the Great Depression on the United States was the failure of the Federal Reserve System. The Federal Reserve System according to the National Council for the Social Studies (2007) was established in 1913, in part to prevent bank failures by lending reserves to banks that were experiencing unusually high cash withdrawals. On the eve of the Depression, the first concern of the 12 regional Federal Reserve Banks should have been the overall health of the financial system. But the regional presidents of the Federal Reserve Banks were hesitant to lend banks in their districts. In consequence, many banks were allowed to fail, and the failures caused fear among account holders in sound banks, prompting them to panic and withdraw their funds. The Federal Reserve System also raised interest rates in late 1931, which discouraged business borrowing and contracted the money supply. Banks keep some of their reserves in the form of bonds. When interest rates rise, the prices of bonds fall; banks then hold assets that have declined in value, yielding less revenue when banks sell them to raise funds to pay depositors (National Council for the Social Studies, 2007).

The First Wave of the Great Depression (1929-1931)

            The breath-taking growth of the American stock market became the symbol of prosperity and became a gauge of the capacity of the United States to produce endless wealth. Though limited by modern standards, the number of Americans drawn into stock market speculation grew rapidly and was far greater by the late 1920s that ever before. Indeed, the whole United States was caught unaware when the crash came in 1929. Consumers and investors were shocked and they lost their confidence. This aggravated the economic downturn, which became more and more visible in the months after the collapse of the market. The fall of the market signaled the end of the era of prosperity. It wiped out the savings and confidence of many Americans. The United States did not expect that the economic crash in 1929 only marked the beginning of a decade-long economic depression. Politicians, businessmen and journalists believed that like the economic depression prior 1922, the economic depression of 1929 will be short-lived. According to Himmelberg (2001), there was a deeply engrained belief among business circles that the modern economy, with its immense production and consumption of so great a variety and volume of consumer goods, had become virtually depression-proof. These beliefs and hopes proved vain. Unemployment rose steadily throughout 1930; consumer spending and production of goods and services fell relentlessly, even though gradually; the stock market continued its decline; farm prices collapsed; and many banks, squeezed by the inability of borrowers to repay loans, approached the brink of failure. American exports, moreover, declined sharply as depressed conditions appeared in Europe soon after the American crash in late 1929.

The Second Wave of the Great Depression (1931-1933)

            The second wave of the Great Depression was more severe than the first. During the second wave, there were banking panics and failures that resulted in the crash of financial intermediation and investment. Because of the banking industry’s failure, the economy contracted rapidly. Industrial production according to Knoop (2004) fell by 43% between April 1931 and June 1932, and unemployment rose to 24%.

Recovery from the Great Depression (1933-1941)

            When Roosevelt came into power in 1933, the gold standard was abandoned which resulted in the devaluation of dollar. France and other European countries, except Germany, also abandoned the gold standard. All countries that dropped the gold standard started to recover after doing so. Once the gold standard was dropped, recovery was strong. According to Bernanke (1995) non-gold standard countries were found to have higher production, prices, money supplies, employment, interest rates, exports, and stock prices than their counterparts that remained on the gold standard. In the United States, the New Deal policies put forward by Roosevelt were found to be beneficial to the economy. Increase in government spending and reductions in taxes stimulated aggregate demand and raised consumer confidence by creating the impression that the government was doing something to improve the economic situation. While these policies were beneficial, it cannot be denied that these were not enough to solve the big problems brought about by the Great depression. The recovery started in 1933, although this was slow. Output had fallen so far below the natural rate that it would necessarily take a long time for it to recover. The recovery was also slowed by the large decline in the capital stock and the lost job skills and training that accompanied lost job opportunities. Output rose very gradually from 1933 to 1937, followed by a short recession from 1937 to 1938. By the 1940, unemployment was still at 14.6% (Knoop, 2004).

What Ended the Great Depression?

Keynesian Explanation

            The Keynesian explanation is based on the theories of John Maynard Keynes. In his 1936 book entitled “The General Theory of Employment, Interest, and Money”, Keynes put emphasis on the relationship between unemployment and the Great Depression. Keynes held that it was possible for total demand in a modern economy to remain low indefinitely, leading to long periods of high unemployment. People who are unemployed are bound to spend less and because of these, businesses are forced not to produced goods which they think will not be purchased. This will further aggravate the problem as businesses will cut production and displace more workers.

            The solution to this problem according to Keynes was to create enough demand to employ the work force fully which will be achieved if the government will increase spending to compensate for the decreased spending of consumers and business firms. Keynes also argued that in order to solve the problems of the Great Depression, the Federal Reserve System of the United States should create new money for the national government to borrow and spend. Rather than raising taxes, the government should take steps to create a deficit by cutting taxes, increasing spending, or some combination.  The length of the Great Depression in the United States seemed to confirm Keynesian theory. Unemployment remained high throughout the 1930s; the unemployment rate was 14.6 percent in 1940. Under Roosevelt, government spending did increase, but by far too little to achieve full employment. Only when the American government began to increase spending in preparation for World War II did unemployment begin to fall to normal levels. In light of these developments, the Keynesian explanation of the Great Depression was increasingly accepted by economists, historians, and politicians (Caldwell & O’Driscoll, 2007).

Keynes had a great influence on the economic thought in America. Keynes’ great contribution was to argue convincingly that, contrary to traditional economic theory, conditions could arise in which natural economic forces, such as the availability of cheap raw materials and labor, could for long periods fail to persuade businessmen to invest in new plants and equipment. Without large investment spending, only large increases in spending on consumption could raise national income and employment, and on consumption could raise national income and employment, and only government could provide for that increase in spending (Himmelberg, 2001). According to Dadkhah (2009), Roosevelt’s New Deal and Keynes’ General theory have a strong affinity. Many believe that Keynes had a great contribution in the creation of Roosevelt’s New Deal economic policies. According to Harris (2005), when the American Government accepted deficit financing and loan expenditures, they have put into practice the theories of Keynes. The American economy also seemed to have become a testing laboratory of Keynes’ ideas. The National Recovery Administration (NRA), the Agricultural Adjustment Administration (AAA), various relief programs, the Social Security Act were interpreted in part as programs which would transfer purchasing power from non-spenders to spenders (Harris, 2005). Again in accordance with sound Keynesian theories, the government, through the Thomas Amendments and the revaluation of gold, prepared the way for monetary expansion and declining rates of interest.

            The traditional views of economist was that economy’s production of goods necessarily entailed the generation of income sufficient to buy all that was produced. Keynes did not agree with this view. According to him, a large amount of a nation’s income went to those who spent on investment in new plants and equipments, not just consumption.  If this class felt opportunities to invest in new means of production were insufficiently profitable, they might prefer to keep their money in a liquid (near to cash) form. A “liquidity trap” could develop, in which too much income was saved rather than invested. This would cause an economic downturn. The solution was for government to make up the shortfall in spending by running deficits, by borrowing and spending well in excess of tax receipts (Himmelberg, 2001).

New Deal Policies

            Based on the arguments of Keyne’s discussed above, he came up with one solution to the Great Depression. This was for the government to stimulate the economy by increasing government spending or reducing tax collections. These moves according to Keynes would lead to budget deficits that could move the economy back toward a new equilibrium in which all resources would be fully employed. Although, the Roosevelt administration was seemingly heeding the advices of Keynes, this is not true, as Roosevelt was following different path in his economic decisions and policies.

Reconstruction Finance Corporation

            Due to the failure of the Federal Reserve System to prevent the crash of the banking industry, the Hoover administration created the Reconstruction Finance Corporation (RFC) in 1932. The RFC was primarily responsible for providing loans to four thousand banks, railroads, credit unions, and mortgage loan companies to provide assets that would propel commercial lending. Among the most important programs was the provision of loans to troubled banks in an attempt to provide them with enough liquidity to survive bank runs. In the Roosevelt administration the RFC retained its usage. The RFC also became the banker for many New Deal programs, providing loans or startup working capital to the Public Works Administration (PWA), the Home Owner’s Loan Corporation (HOLC), the Farm Credit Administration (FCA), the Federal Housing Administration (FHA), the Rural Electrification Administration (REA), and the Works Progress Administration (WPA).

Emergency Relief and Public Works Programs

            Federal spending during the Roosevelt administration was largely aimed at solving the problems that had arisen during the Great Depression. One of the central problems was determining how to aid the huge numbers of unemployed and discouraged workers. Prior to the Depression, the Federal government had assumed virtually no responsibility for the provision of relief payments to low-income people and the unemployed. Because of the dramatic increase in unemployment rates, the Federal government was pushed to take a new role. During the Roosevelt administration, the unemployment rate was more than 20 percent. In this time, the government took the main responsibility in the provision of relief. Thus, the Federal Emergency Relief Administration (FERA) was established. The FERA distributed federal monies to the states, which in turn, distributed the monies to local areas, which administered the payments to households. The FERA program offered either direct relief payments or work relief that required a family member to work for the funds. The Roosevelt administration also created Civil Works Administration (CWA) in 1933 in an attempt to lessen, the still large unemployment rate. CWA was established to immediately put people to work on public jobs.

The Farm Programs

            The situation of farmers was far worse that that experienced by workers cities and industries. An expansion of farms during the World War I had followed a golden era of farm prices in the early 1900s. As the Europeans recovered from the war in the early 1920s, demand for American farm products declined, and the farm sector went through a difficult shakeout in the early 1920s. After a decade of troubles farmers were hit still harder by the Great Depression. The Roosevelt administration responded to farmers’ pleas during the “First Hundred Days” by establishing a series of measures that became the basis for the nation’s modern farm programs. The goal was to limit supply and thus raise the ratio of farm prices to nonfarm prices to levels seen during the golden era just prior to World War I. The New Deal program gave rise to the rental and benefit program administered by the Agricultural Adjustment Administration (AAA). For a wide variety of farm products the AAA offered agreements to farmers that paid them to take land out of production. The funds for the program came from a tax on farm output at the location where it was first processed. Many farmer also benefited from a wide range of loan programs. The Commodity Credit Corporation (CCC) lent funds to farmers for crops in storage with terms that contributed to keeping prices high. When repayment time came, if crop prices exceeded the target level, the farmer would sell the crop on the market and repay the government loan. If crop prices were below the target, the farmer gave the crop to the government as payment of the loan. In the 1930s the CCC set the target prices above market prices, so the program operated as a price support program.

National Industrial Recovery Act (NIRA)

            The NIRA was the center of the early New Deal. The policy aimed to enhance economic recovery by increasing the public’s purchasing power and by imposing some measured control over the conditions of production and commerce. This act seemed to follow, Keynes’ advice, but Keynes was not pleased with what the Roosevelt administration has done. Indeed, NIRA was declared unconstitutional in 1935, two years after its enactment. The underlying economic philosophy of the NIRA was that the depression was a result of the intense competition in industry and commerce. In order to correct the evil, the act provided for the creation of business codes of fair competition to be promulgated by trade associations and industrial groups and brokered by the administration (Shamir, 1995). The workers, under NIRA were to be protected by minimum wages, limits on hours, and rules related to working conditions.

The End of the Great Depression According to Keynesian Views

            John Maynard Keynes put forward a new and radical theory (during his lifetime) that will explain the emergence of the Great Depression and will provide a solution to it. According to Keynes the remedies to the Great Depression center on the government’s act to spend a great deal of money in excess of tax revenues. Keynes’s analysis overturned the engrained conclusion of traditional economic theory that the competitive forces of the market economy would inevitably create sufficient demand to buy all that was produced and provide for full employment of resources. Keynes argued that the volume of investment in new plant and equipment was the key variable for maintaining full employment. Circumstances could arise, he held, in which savings would not be translated into investment over a long period and that the result could be a situation, like the depression, of protracted underemployment of resources. Keynes’s analysis provided the theoretical underpinning for the policy that most conventional economic opinion had continued to reject, that the continued state of depression mandated heavy government spending through borrowing.

            American Keynesians, accepted this view and warned that the American economy was undergoing a secular stagnation. According to a famous American Keynesian, America was in the grip of secular stagnation because investment had failed and could not recover. The volume of investment would never again be sufficient to create full employment because the major stimuli that promoted investment historically – the need to develop the frontier and a booming birthrate – had now disappeared. Large-scale government deficit spending could provide for employment, but economic controls to prevent interest groups from taking advantage of rising prosperity and causing inflation would be necessary. Deficit spending might cure unemployment, but the cost would be the abandonment of a considerable degree of the freewheeling entrepreneurial capitalism America had always known and relied on.

            Although the Keynesian views were rejected by many policy makers and economists, the events in early 1940s seemed to point at the correctness of Keynes’ arguments. Defense spending grew rapidly during 1940 and 1941 but vaulted to previously unimaginable levels after the Japanese attack on Pearl Harbor on December 7, 1941, drew a united America into World War II. Federal spending on war production now soared. Unemployment vanished, and the standard of living rose, despite wartime scarcity of some consumer goods. By 1944 the total production of goods and services had nearly doubled relative to 1937. The surging economy of the war years served to emphasize the tragic extent of the losses economic stagnation had inflicted on the nation during the Great Depression. To many observers, it demonstrated that America could have escaped those losses. Clearly it was massive government expenditures that brought the economy to life after 1939 and ended the years of economic doldrums. For those who had called for large increases in government borrowing and spending as the way out of depression, the economic expansion and prosperity of the war years was a vindication.

The economic revival, moreover, continued after World War II. After a brief postwar recession, the American economy set off on a long period of steady growth, which, with some lapses, as during the highly inflationary and intermittently depressed 1970s, has extended to the present day. High-volume governmental spending continued throughout this period. But most economists attribute postwar growth to a revived capitalism, the processes of economic innovation, and private investment in new industries and new products. American experience during and after World War II seemed to indicate that, first, deficit spending could effectively stimulate employment and, second, that American capitalism was still capable of steadily producing economic growth and a high level of employment of resources.

The length of the Great Depression in the United States seemed to confirm Keynesian theory. Unemployment remained high throughout the 1930s; the unemployment rate was 14.6 percent in 1940. Under Roosevelt, government spending did increase, but by far too little to achieve full employment. Only when the American government began to increase spending in preparation for World War II did unemployment begin to fall to normal levels. In light of these developments, the Keynesian explanation of the Great Depression was increasingly accepted by economists, historians, and politicians.

            The hesitation of businessmen to invest was also seen as a contributing factor to the emergence of the Great Depression. Although, Keynes pointed out that in order for the economy to regain its strength, the government must increase its spending in order to compensate for the failure of investment, both depression-era Presidents (Hoover and Roosevelt) did not pay attention. Hoover’s fiscal policy was restrained, except for 1931, when Congress enacted over the president’s veto a bill providing for the immediate payment of part of the bonus veterans were scheduled to receive under earlier legislation, in 1945. Roosevelt also practiced a restrained fiscal policy, although he acquiesced in modest deficit spending during 1933–1936 to fund unemployment relief and other programs of recovery. The modest deficits of those years stemmed not from a deliberately expansionary fiscal policy but were incidental to the creation of programs intended to alleviate the depression’s impact. The magnitude of this deficit spending was sufficient to exert some positive force on the economy but fell far short of sparking full recovery. By 1937–1938, however, when the recovery halted and reversed, Keynes’s ideas had taken root and the spending policies of the late New Deal years were influenced by them.

            Another view as to the ending of the Great Depression was presented by Peter Tamin. Tamin attributes the downturn of 1929, and the ensuing Great Depression to bad governmental monetary policy. In 1928 and 1929, the Federal Reserve banks, concerned about the soaring stock market speculation, adopted interest rate policies that exerted deflationary pressures on the economy. America’s banking authorities, in other words, set interest rates at a level that slowed the pace of healthy borrowing for business purposes and limited growth of the supply of money below the real needs of the economy. None of this deterred the stock market boom, which during the first half of 1929 became more dangerously speculative than before, but it did succeed in slowing down the economy. This in turn led, in October 1929, to the Great Crash. The downward trend of the economy, once set in motion, had a momentum of its own and was aggravated by a number of circumstances, such as those mentioned earlier in this paper.

The Federal Reserve System raised interest rates in early 1928, which discouraged business borrowing and spending and brought about the decline in production that began that summer. Interest rates were raised again in 1930 and 1931.

Furthermore, when banks began to fail in large numbers at the end of 1930, the Federal Reserve System did little to assist them. The Federal Reserve System had been established by Congress in 1913 for the express purpose of preventing bank failure caused by a "run" on the bank. A run occurred when many customers withdrew all their deposits in the form of cash, forcing the bank to close when all its cash was depleted. In such cases, Federal Reserve Banks were to supply banks with enough cash to meet the demands of their customers, thus preventing bank failure. But, according to Friedman and Schwartz, the Federal Reserve Banks in the 1930s refused to support banks that they thought were unlikely to repay them, forcing many basically sound banks into bankruptcy. When a bank fails, its deposits can no longer be spent; as a result, the amount of money circulating in society goes down, depressing demand for goods and services.

The Great Depression lasted for a long time, according to the monetarists (Friedman and his followers), because bankers were reluctant to make new loans after 1933. Bankers made only the safest and most conservative loans in these years because they believed that the Federal Reserve would not support them if they got into trouble. Furthermore, as the economy began to improve in 1936, the Federal Reserve System actually raised interest rates on loans, fearing inflation.

Conclusion

            In conclusion, I would like to take the Keynesian and Temin views on how the Great Depression ended. By consulting different works on the subject, I conclude that the Great Depression ended indirectly because of the New Deal programs and policies enacted by Roosevelt which resulted in the abandonment of gold standard, increase in government spending and restructuring governmental monetary policy.

           

 

 

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