What ended the Great Depression?

From the comments at Brad DeLong (way toward the bottom):

…fiscal policy had virtually nothing to do with the recovery. On this see

Brown, E. Cary. “Fiscal Policy in the Thirties: A Reappraisal.” American Economic Review 46, no. 5 (1956): 857-79.

Peppers, Larry. “Full Employment Surplus Analysis and Structural Change: The 1930s.” Explorations in Economic History 10 (1973): 197-210.

Raynold, Prosper, W. Douglas McMillin and Thomas R. Beard. “The Impact of Federal Government Expenditures in the 1930s.” Southern Economic Journal 58, no. 1 (1991): 15-28.

Christina Romer, “What Ended the Great Depression?”  Journal of Economic History (1992).

I went back and reread Romer and it is monetary policy, monetary policy, and monetary policy which ended the Great Depression.  It is a highly credible account.

By the way, here is Brad’s very interesting mini-essay on the New Deal, an extension of his Econoblog debate with Arnold Kling.


I think Romer's is a persuasive account, but it helps a lot to remember that "monetary policy" ≠ "the Fed" and that maybe "policy" is a misnomer, there. FDR devalued the dollar through the last months of 1933, which might have provided a shock upward price to some commodities (good), and with the revaluing of the dollar at $35/oz of gold in January 1934, appears to have put the dollar at an attractive price point for international investors.

But it might not have been all that attractive had not gold from Europe been just itching for someplace else to go. FDR was looking for a long-term inflationary policy based on his management of the currency, instead he got a flood of gold.

It's also important to make entirely clear what you mean by "ended the Great Depression." If you just mean, "eventually reversed the disastrous downward spiral of 1929-33," then maybe monetary policy is your man. But if you mean, "saved the institutions of the U.S. from radical depredations and the people of the U.S. from poverty and starvation," you have some further explaining to do.

"No he doesn't. Those things (people, institutions, poverty, starvation) don't matter, really. Well, once the market determines it so, at least."

I'm struggling to figure outwhat you could possibly think this statement means. What do you think "the market" is?

Mr. Rosser -- John Flynn's "As We Go Marching" provides a fairly convincing account of fascism as simply an attempt to manage and eliminate unemployment, largely through deficit spending ("fiscal policy" in its crudest form). It's easy for a totalitarian government to obtain full employment -- the hard part is to figure out what to do with all those troops, or how to pay down that debt. The solutions attempted in Germany did not prove universally popular elsewhere.

Fiscal policy can eliminate unemployment. That it did not do so in the US should be regarded as extremely fortunate: The other effects of such a policy would have been bad indeed.

Monetary policy having more of an effect in reversing the death spiral of the Great Depression makes MUCH mores sense if only because the effects of a change in monetary policy are felt so much more quickly than changes in fiscal policy, which can take a very long time to really take effect, given that they are essentially a change in incentives for "the masses" of often irrational consumers with little predilection to embrace change...

I saw the user-name "anne" in all lower-case and thought to myself "There's no way this polite, reasonable person is the same anne that comments at Brad's blog". Sure enough, the e-mail addresses are different.

I think Caplan would refer to the solutions to unemployment in fascist and other countries as "make-work bias".

thank you for your article

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