Top Three Myths About the Great Depression and the New Deal

Release Date
July 1, 2011

Topic

History
Description

Historian Stephen Davies names three persistent myths about the Great Depression. Myth #1: Herbert Hoover was a laissez-faire president, and it was his lack of action that lead to an economic collapse. Davies argues that in fact, Hoover was a very interventionist president, and it was his intervening in the economy that made matters worse. Myth #2: The New Deal ended the Great Depression. Davies argues that the New Deal actually made matters worse. In other countries, the Great Depression ended much sooner and more quickly than it did in the United States. Myth #3: World War II ended the Great Depression. Davies explains that military production is not real wealth; wars destroy wealth, they do not create wealth. In fact, examination of the historical data reveals that the U.S. economy did not really start to recover until after WWII was over.

Top Three Myths About the Great Depression and the New Deal
By definition, military production output is not real wealth. Wars destroy wealth rather than creating it.
There are a number of myths about the Great Depression which are very popular. The first is that Herbert Hoover was a do–nothing, laissez faire president who simply allowed unemployment to rise and was responsible for a total economic collapse. In fact, this is the opposite of the truth. Hoover was an extremely interventionist president. And one of the main reasons why the Great Depression became so severe was because of the active interventionist policy he followed, in particular, his refusal to allow asset values and wages to find a natural clearing level.
The second myth is that the New Deal saved American capitalism and brought the Great Depression to an end. The historians generally do not believe this anymore. The fact is that in most parts of the world the Great Depression began to end much, much earlier and much, much more quickly than it did in the United States. In Great Britain, the Great Depression was over by 1933, and Britain, in fact, enjoyed very rapid economic growth from 1931 onwards. In the United States, by contrast, not only does the Great Depression go on for more than a decade, it in fact actually gets worse, and by 1937, the level of unemployment in the United States is as high as it had been in 1932, but in addition the federal government has built up an enormous debt.
The third common myth is that what eventually ended the depression and saved the economy was World War II. By definition, military production output is not real wealth. Wars destroy wealth rather than creating it. In fact if you look at the figures for American economic activity and you strip out the war effects, as people like Robert Higgs have shown, what you can only conclude is that in fact the Great Depression does not really end until 1947 or 1948, and the war simply conceals or covers up the continuing low level of real wealth-creating economic activity in the United States.