Investment in the Great Depression

Brad DeLong shows a graph of how Gross Private Domestic Investment rises during the New Deal, except for the contractionary 1937-8 downturn.  The pattern is striking.

A loyal MR reader emails me a citation to Robert Higgs’s book, which on Google (pp.6-7) claims that net investment was negative over the 1930-35 period.  There is talk of a "capital consumption allowance" and that allowance accounts for the difference between the gross and the net terms.  Only in 1941 did net investment exceed its 1929 level.  Here’s a chart which seems consistent with these claims and which shows the difference between the net and the gross series for investment.  The waves are very similar but at different absolute levels.

Can any readers explain what is going on  In this time period, using this data, is net or gross investment a better indicator of recovery and economic conditions?  Is the pro-New Deal claim that making net investment "less negative" (but still negative) counts as a success or rather that the gross investment series is what matters? 

When I look at this data series — whether gross or net — I see a few monetary policy actions (initial reflation, breaking the old link to gold, increasing reserve requirements in 1936) as the dominant explanatory variables. 


Comments for this post are closed