Journey Through Night To Dawn

The recovery of US economy from the captivity of Great Depression was a very long and difficult journey. The slide of US economy to great depression was like an epidemic disease to the country, for which the doctors (government, economists & monetarists), neither had any precautionary methods nor any prescribed medicines. There is no concrete evidence to what caused the great depression, neither any concrete evidence to what caused the recovery. The initial year’s recovery action was a series of hits & misses. However it is thought that the monetary policy, fiscal policy, New Deal by Roosevelt, Suspension of Gold Standard in 1933 and finally the World War 2 combinedly spurred the recovery process.

                                                           (Source: fotolia.com)


This recovery could have been faster, if government refrained from creating barriers and prolonging the intervention. President Herbert Hoover (1929-33), tried many methods to stabilize the financial condition, but his every effort seemed to be swallowed by the whale of great depression. He introduced the Smoot-Hawley Tariff Act, in an attempt to increase reliability on US made products, so that domestic demand can lead to a higher production, and hence lend a supporting hand to the economy. But little did he knew that this Act will backfire. In retaliation, every other country increased their import tariffs on US products and international trade went face down. Securing hopes among people for a better future was the election of Roosevelt as president. He launched New Deal, which was designed to reform, regulate and recover the economy.Monetary base was increased through devaluation of dollar and suspension of gold standard. The devaluation helped attract huge gold inflow from Europe and money multiplier took front seat again.
The monetary policy healed the pain, but it was not able to completely deal with the burgeoning unemployment or slumping GDP. The onset of World War 2 eradicated the entire problem. It created urgency of production and decreased unemployment as huge numbers of people were required in the war front. The countries involved in War were hoarding gold in U.S banks to keep them secured, creating monetary expansion within U.S. Thus, war was crucial in eradicating the depression, and monetary policy in accelerating the recovery before war.