Myth: The Great Depression was the worst economic disaster ever to beguile America. It was so bad the New Deal couldn’t defeat it, but the New Deal ameliorated it and made things better than they otherwise would have been. Finally, the onset of World War II ended the Depression.
Truth: The New Deal deepened and prolonged the Great Depression, making it worse than it would have been otherwise. World War II did not end the Depression. Rather, World War II ended the New Deal, and that allowed the Depression to end. It didn’t come back when the war ended because a new Republican Congress defeated attempts by Democrats to revive the New Deal.
Although it was several decades ago, I remember as if yesterday that Professor Ernie Andrade at the University of Colorado confidently taught the myth stated above to his class in American History. He believed it, I believed it, I’m pretty sure the whole class believed it. Heck, I’m pretty sure the entire country believed it and nearly the entire populace of America still believes it. But it’s wrong. It’s a myth.
The myth is admirably exposed and destroyed by these two books: Depression, War, and Cold War: Challenging the Myths of Conflict and Prosperity, by Robert Higgs; and New Deal or Raw Deal? How FDR’s Economic Legacy Has Damaged America, by Burton Folsum.
Burton Folsum is a history professor at Hillsdale College. Robert Higgs is a senior fellow in political economy at the Independent Institute and the editor of the quarterly journal Independent Review.
An short and brilliant version of the argument made in Burton Folsum’s book appeared this week at The Freeman. In that essay, Professor Folsum asks, “What finally ended the Great Depression? That question may be the most important in economic history. If we can answer it, we can better grasp what perpetuates economic stagnation and what cures it.”
There was a stock market crash in 1920 followed by a recession that people then called a Depression. It was pretty bad. Treasury Secretary Andrew Mellon had done a study that showed raising taxes would drive money underground and abroad. He concluded that lowering taxes would boost tax revenues. Newly inaugurated President Warren G. Harding supported and Congress agreed to cut taxes. Harding was not inclined to have the government intervene in the economy any more than that. The result is that the 1920-1921 Recession or Depression ended soon, after a short period in which economic and financial markets adjusted.
There’s a good book about that also: The Forgotten Depression 1921: The Crash That Cured Itself, by James Grant.
Afterwards, the 1920’s roared on.
If there had been no New Deal, meaning FDR would not have been elected, it is tempting to believe the Great Depression of the 1930’s would have been avoided. But alas, no. Because if Herbert Hoover had been re-elected he would have done pretty much the same things that FDR did. Hoover had already shown himself to be as ignorant on economic policy as anyone alive and would have continued the very policies that he instituted and which had already started the Depression during 1930-32.
The 1930’s was a decade in which the angels did not smile on America.