The Great Depression was the worst economic downturn in American history. Countless books and historical explorations have focused on the era, but, somehow, myths about the Great Depression abound. While most recessions are over in a few years, the Great Depression lasted for over a decade and saw massive unemployment and the destruction of wealth. It shaped a generation who grew up with fewer material possessions and an understanding of poverty and what it means to struggle. It's one of the reasons Franklin Delano Roosevelt is considered one of the greatest US Presidents of all time. However, it also spawned a multitude of popular legends about the causes of and solutions for this dark period in American history.
There are many misconceptions about the Great Depression that endure today. A variety of interested parties have made it a point to craft the narrative of the Depression to support their political agendas in the time since it took place. Fortunately, there still are serious historians who have looked at the Depression from many angles and seek to uncover the truth of the matter.
Everyone Was Poor During The DepressionPhoto: Loew's Inc.
While the Depression did have a wide impact, up to 40% of Americans faced no real economic hardship. Some people even managed to get rich during the time period. This period was also considered the Golden Age of Hollywood – when the studio system was at its zenith. Such classics as Dracula, Frankenstein, and Gone With the Wind were all filmed during the 1930s.
The New Deal Ended The Depression
According to some, at best, the New Deal was ineffective, and, at worst, it actually lengthened the Depression. It was the manpower requirements of WWII that finally got people back to work. Millions of Americans found gainful employment as enlisted men, effectively bringing the unemployment rate bellow double digits for the first time since 1930. Others found work due to the increased production demands of the war.
Some argue that, with the rationing and economic hardship of the war years, the Depression really shouldn't be considered over until 1947. Counting the increased GDP of the war spending participates in the broken window fallacy, which is premised on the idea that it's fallacious to reason that destruction benefits an economy.
The Depression finally ended, in part, because the manufacturing capabilities of most of the rest of the world had been bombed out, giving the US a competitive advantage. Another factor were the decreased regulation and taxes under President Truman.
Adherence To The Gold Standard Caused The Depression
In the first place, the world hadn't been on the classic gold standard since WWI and instead was using a "gold exchange standard" by the time of the Depression. Under this system, currencies were pegged primarily to the British pound and the American dollar, which, in turn, were redeemable for gold. As the 1920s went on, gold itself played less and less of a direct role in international finance.
Then, in 1933, FDR actually seized the gold assets of private American citizens. That's right; he used his executive authority to forcibly purchase gold bullion and gold certificates on behalf of the government. This completely liquidated the natural gold exchange system that existed. The executive order essentially made it illegal to own gold, physically or as an asset.
FDR then, thanks to a power granted by Congress, arbitrarily altered the price of the dollar relative to gold. He picked a 21 cent hike because, well, 21 was a lucky number. So, far from creating a stable currency (the purpose of the gold standard), FDR intervened directly to subvert the gold standard and inflate the dollar. If adherence to a gold standard was indeed the cause of the Great Depression, it stands to reason that these actions would have ended it. Instead, the sudden change in the value of money exacerbated the climate of uncertainty plaguing the economy.
The New Deal Policies Of FDR Ended The Depression
At best, the New Deal policies were ineffective, and at worst they actually lengthened the Depression. In reality, it was World War II that ended the Great Depression (in a way). It directly ended the unemployment problem with millions of Americans landing "gainful" employment as enlisted men. Millions more were drawn into service to produce goods for the singular goal of the war effort. The war also broke up the protectionist policies that had dominated the globe in the 1930s. The US was trading internationally again, at least with its allies.
Some argue, however, that it would not be until the end of WWII that the Great Depression could really be considered over. During the war, rationing was the norm, and even with the increased wartime production, the standard of living in the US was still at Depression levels. Economic activity was still low. When the war ended Truman rolled back many of FDRs policies, lowered the tax burden, and reduced government spending from 42 percent of GDP to 14 percent. The US also became a major industrial center for the world, mostly because it wasn't bombed to bejesus and back like everywhere else. It was this postwar boom that finally brought back economic prosperity.