Combating the Great Depression

The Hoover Administration-

The Hoover Administration was in power at the onset of the Great Depression. Initially, President Hoover advocated volunteerism and charity to combat the depression. However, a lack of success resulted in a turn to interventionism. Hoover attempted to encourage and regulate the banking industry, however, he received little support from Congress or American banking. He also tried to increase public works to provide jobs, with large construction projects such as the Hoover Dam.

Keynesian Economic Theory

This interventionist approach was articulated shortly after by John Keynes, Known as Keynesian economics, Keynes argued that when the free market experienced a recession, the government and central bank should intervene. State intervention was intended to stimulate consumer demand by creating temporary government jobs and increasing spending on public works. The central banking system (the Federal Reserve of the U.S.) should inject money into the banking system to stimulate economic activity. Once economic recovery began to occur, Keynes argued the government and central bank should start to lower activity as economic growth resumed.

The Roosevelt Administration

Regardless of the Federal Reserve’s inactivity, most people—perhaps unfairly—blamed Hoover. In 1932, Democratic candidate Franklin Roosevelt won the U.S. Presidential Election. The Roosevelt Administration adopted an interventionist fiscal policy and greatly increased government spending, employment, and public aid. A series of acts known collectively as the New Deal represented Roosevelt’s pro-interventionist approach.

Legacy of the New Deal

Among the many programs and agencies, the New Deal included:

  • The Civilian Conservation Corps. to employ young men in park and infrastructure building

  • The Glass-Steagall Act to regulate and limit loans and investment banking

  • The Tennessee Valley Authority to provide public employment and power facilities

  • The Social Security System to provide state pensions for the retired and elderly

While some of these programs still exist today, it is generally agreed among economists that the New Deal failed to end the Great Depression. The consensus is that increased economic activity, employment, and government spending during World War II (1939-1945) effectively ended the Great Depression.