What policy instruments were deployed to contain the Great Economic Depression?

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Ghissu Editorial · Accepted Answer

Governments fought the Great Depression with public works and deficit spending, social insurance, abandonment of the gold standard, bank rescue and regulation, price support and debt relief. The US New Deal of 1933, with the PWA, CCC, TVA and the Glass-Steagall Act, was the fullest such toolkit.

**Introduction**

By 1933 a quarter of the US workforce was jobless and world trade had shrunk by about two-thirds in value since 1929. As balanced budgets and the gold standard deepened the slump, governments turned to new instruments.

**Fiscal and Relief Instruments**

SKETCH: flow | Pump-priming chain
- Public spending
- Wages paid
- Demand revives
- Output, jobs rise

1. **Public works**: Roosevelt's New Deal (1933) created the Public Works Administration, the Civilian Conservation Corps and the Tennessee Valley Authority, and the Works Progress Administration (1935) employed millions.
2. **Deliberate deficits**: Sweden ran planned deficits from 1933 on the Stockholm School's advice, and Japan's Takahashi Korekiyo paired spending with a cheaper yen.
3. **Rearmament as recovery**: Nazi Germany funded autobahns and rearmament through Schacht's Mefo bills, cutting unemployment sharply by 1936.
4. **Social insurance**: The US Social Security Act (1935) brought old-age pensions and unemployment insurance.

**Monetary, Financial and Trade Instruments**

1. **Leaving gold**: Britain left gold in 1931 and the US devalued the dollar under the Gold Reserve Act (1934); countries that left early recovered sooner.
2. **Bank rescue and regulation**: The Emergency Banking Act (1933) declared a bank holiday, Glass-Steagall (1933) split commercial from investment banking and created deposit insurance, and the SEC followed in 1934.
3. **Price support**: The Agricultural Adjustment Act (1933) paid farmers to curb output to lift prices.
4. **Debt and trade measures**: The Hoover Moratorium (1931) paused war-debt payments, but Smoot-Hawley (1930) and Ottawa imperial preference (1932) became beggar-thy-neighbour tariffs.

**Conclusion**

Leaving gold and reforming banks halted the collapse, though full employment returned only with wartime spending. The lasting legacy, codified by Keynes in 1936, is the state as stabiliser of last resort.

What policy instruments were deployed to contain the Great Economic Depression?

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