I asked a question on my own forums on what caused the brief upticks in the economic during the 1930s ( http://economicthought.net/forum/viewtopic.php?f=9&t=7 ). Given that these forums don’t really have a large membership yet, and I’m genuinely interested in an answer, I just feel like it’s a better option to ask here.
Are there any books that anybody knows about that do cover these brief and limited “recoveries”?
Even during a depression the stock market does not move sideways. Stock prices rally up and then move down again, called a bear market rally. Optimistic news like today’s news of “things are getting worst at a slower pace than expected” changes market sentiment, but doesn’t necessarily mean real recovery is occurring. Stock prices rising doesn’t mean economic recovery.
In 1933 you had the biggest banking collapse. This meant a lot of the economic rot was cleared from the system and it was bound for some sort of improvement. However, in 1939 the per capita GDP was still lower than in 1929 while unemployment was still higher than in 1931, even though the Fed doubled the money supply in that time (which Keynesians claim supposed to create employment). In 1933 FDR created FDIC and Glass Steagall to create confidence in banking, but during his time he also demanded raises for already high paying jobs (creating unemployment), tripled taxes and did lots of economically crazy things like price controls (creating shortages in goods), created & raised tarrifs on imports and destroyed real wealth (slaughtered pigs, plowed in cotton, etc) to attempt to artificially raise prices on goods.
In 1937 the banks were holding more dollar reserves than the reserve requirements set by the Fed. This meant the Fed didn’t have complete control over the money supply, because Banks could still expand the money supply at will. Therefore the Fed raised the reserve requirements. This led banks to contract the money supply even further, creating a deflationary downward economic spiral in the later part of the 1930’s. Creating a recession within a depression.
You may find these informative:
http://fee.org/wp-content/uploads/2008/12/greatmythsdepression2008feemcppfinalweb.pdf
Ok, but we’re not talking about minor turn arounds. This is what I assumed, but I don’t think the answer is complete. Unemployment at the start of 1933 was 25.2%, and at the start of 1934 it was 22%, 20.3% in 1935 and then 17% in 1936. It hit its lowest in 1937, at 14.3%. During Roosevelt’s second term it increased. Burton Folsom Jr. says: “The 14.3% is, however, alarmingly high…” He negates the lower unemployment by saying that it was still high. No historian against the New Deal (that I have read) has really offered insight on how unemployment went from 25.2% to 14.3% in four years, and then from 14.3% to 20.7% in 1939.
I don’t care about how 1939 compared to 1931. I am not worried about that. I know that Roosevelt did not spark a recovery to prosperity. I am interested in knowing the theory behind what allowed such a radical decrease in unemployment, and then such a radical increase (the amount of those who found employment surpass the amount employed by the WPA, and if Henry Hazlitt is correct then even those employed by the WPA are irrelevant because somebody employed by the private sector lost their job, at the bare minimum). The decrease in unemployment does not correspond with his policies, and so I am interested in what caused that temporary decrease in unemployment.
Well when Roosevelt came to office he was able to stop the hemorrhage of gold and banking panics by closing the banks and putting us on a fiat standard. So he in essence was able to “floor” the problem.The Depression did “bottom” out by then, and now it was just a matter of recovery. As for businessman hearing upon this, and getting a new president who promises a “New Deal” (Whatever that may be, cutting government/unemployment/banks/gold etc etc), you try to think optimistically and rally behind it. Benjamin Anderson, writing in Economics and the Public Welfare, states that the Federal Reserve index of production rallied quickly in 1933 from 60 in March 1933 to 100 by July 1933, but then fell down to 72 by November 1933. When the end of the NRA came in May of 1935 he says that was when “real recovery” came because the NRA put alot of fear into business. Vedder and Gallaway also in Out of Work: Unemployment in the Twentieth Century state unemployment fell after 1933 because of the increase in productivity, prices and demand from businesses and a slight decrease in the adjusted real wage. However they state that soon wages increased rapidly and outstripped productivity in 1937 which brought the business downturn in 1937-1938, along with the “thin market” in the Stock market that Benjamin Anderson describes. Government programs technically ameliorated the problem, they did take people off the streets and make them labor on useless public works projects. But the fact remains during most of the New Deal a typically recovery never came because private investment decreased, and all of the workers were kept “employed” by a government bubble of debt. Keynesians sometimes point to the fact that government spending decreased prior to 1937 which caused the problem, and if this is true, then why didn’t the country plunge back into a depression post 1945? In both cases the workers were doing pointless things, i.e making war materials and working on public works projects.
I just ordered Robert Murphy’s The Politically Incorrect Guide to the Great Depression. Apparently it is not as irreverent as the normal PIG books, and people say this is the Austrian explanation for the entire Great Depression which was never really done before.
Hope this helps 