The Great Depression began in August 1929, when the United States economy first went into an recession. Although the country spent two months with declining GDP, it was not until the Wall Street Crash in October 1929 that the effects of a declining economy were felt, and a major worldwide economic downturn ensued. The stock market crash marked the beginning of a decade of high unemployment, poverty, low profits, deflation, plunging farm incomes, and lost opportunities for economic growth as well as for personal advancement. Altogether, there was a general loss of confidence in the economic future.
The usual explanations include numerous factors, especially high consumer debt, ill-regulated markets that permitted overoptimistic loans by banks and investors, and the lack of high-growth new industries. These all interacted to create a downward economic spiral of reduced spending, falling confidence and lowered production.Lester Chandler (1970), America's Greatest Depression Industries that suffered the most included construction, shipping, mining, logging and agriculture (compounded by Dust Bowl in the heartland). Also hard hit was the manufacturing of durable goods like automobiles and appliances, whose purchase could be postponed. The economy hit bottom in the winter of 1932–33; then came four years of growth until the Recession of 1937 brought back high levels of unemployment.Chandler (1970); Jensen (1989); Mitchell (1964)
The Depression caused major political changes in America. Three years into the depression, President Herbert Hoover, widely shamed for not doing enough to combat the crisis, lost the election of 1932 to Franklin Delano Roosevelt in a embarrassing margin. Roosevelt's economic recovery plan, the New Deal, instituted unprecedented programs for relief, recovery and reform, and brought about a major realignment of American politics.
The Depression also resulted in an increase of emigration for the first time in American history. Some immigrants went back to their native countries, and some native U.S. citizens went to Canada, Australia and South Africa. There were mass migrations of people from badly hit areas in the Great Plains (the Okies) and the South to places such as California and the cities of the North (the Great Migration). The Migrant Experience. Memory.loc.gov (1998-04-06). Retrieved on 2013-07-14. American Exodus The Dust Bowl Mi. Faculty.washington.edu. Retrieved on 2013-07-14. Racial tensions also increased during this time. By the 1940s immigration had returned to normal, and emigration declined. A well-known example of an emigrant was Frank McCourt, who went to Ireland, as recounted in his book Angela's Ashes.
The memory of the Depression also shaped modern theories of economics and resulted in many changes in how the government dealt with economic downturns, such as the use of stimulus packages, Keynesian economics, and Social Security. It also shaped modern American literature, resulting in famous novels such as John Steinbeck's The Grapes of Wrath and Of Mice and Men.
Examining the causes of the Great Depression raises multiple issues: what factors set off the first downturn in 1929; what structural weaknesses and specific events turned it into a major depression; how the downturn spread from country to country; and why the economic recovery was so prolonged.Bordo, Goldin, and White, eds., The Defining Moment: The Great Depression and the American Economy in the Twentieth Century (1998).
Many banks began to fail in October 1930 when farmers defaulted on loans. There was no FDIC during that time as bank failures were considered a normal part of economic life. Worried depositors started to withdraw savings, so the money multiplier worked in reverse. Banks were forced to liquidate assets (such as calling in loans rather than creating new loans).Robert Fuller (2012), Phantom of Fear: The Banking Panic of 1933, pp. 241–42 fn. 45 This caused the money supply to shrink and the economy to contract (the Great Contraction), resulting in a significant decline in aggregate investment. The decreased money supply further aggravated price deflation, putting more pressure on already struggling businesses.
The U.S. Government’s commitment to the gold standard prevented it from engaging in expansionary monetary policy. High interest rates needed to be maintained in order to attract international investors who bought foreign assets with gold. However, the high interest also inhibited domestic business borrowing. The U.S. interest rates were also affected by France's decision to raise their interest rates to attract gold to their vaults. In theory, the U.S. would have two potential responses to that: Allow the exchange rate to adjust, or increase their own interest rates to maintain the gold standard. At the time, the U.S. was pegged to the gold standard. Therefore, Americans converted their dollars into francs to buy more French assets, the demand for the U.S. dollar fell, and the exchange rate increased. One of the only things the U.S. could do to get back into equilibrium was increase interest rates.
Nobel laureate economist Milton Friedman and his fellow monetarism Anna Schwartz argued that the Federal Reserve could have stemmed the severity of the Depression, but failed to exercise its role of managing the monetary system and ameliorating bank runs, resulting in a Great Contraction of the economy from 1929 until the New Deal began in 1933. This view was endorsed by Fed Governor Ben Bernanke who made this statement in a speech honoring Friedman and Schwartz:
Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression, you're right. We did it. We're very sorry. But thanks to you, we won't do it again.Ben S. Bernanke (Nov. 8, 2002), FederalReserve.gov: "Remarks by Governor Ben S. Bernanke" Conference to Honor Milton Friedman, University of Chicago
— Ben S. Bernanke
Since many banks had also invested their clients' savings in the stock market, these banks were forced to close when the stock market crashed. After the stock market crash and the bank closures, people were afraid of losing more money. Because of their fears of further economic challenge, individuals from all classes stopped purchasing and consuming. Thousands of individual investors who believed they could get rich by investing on margin lost everything they had. The stock market crash severely impacted the American economy.
The closures resulted in a massive withdrawal of deposits by millions of Americans estimated at near $6.8 billion (equivalent to around $60 billion in today's dollars). During this time the Federal Deposit Insurance Corporation (FDIC) was not in place resulting in a loss of roughly $1.36 billion (or 20%) of the total $6.8 billion accounted for within the failed banks. These losses came directly from everyday individuals' savings, investments and bank accounts. As a result, GDP fell from the high seven-hundreds in 1929 to the low to mid six-hundreds in 1933 before seeing any recovery for the first time in nearly 4 years.USA annual GDP from 1910-60, in billions of constant 2005 dollars, with the years of the Great Depression (1929–1939) highlighted. Based on data from: Louis D. Johnston and Samuel H. Williamson, "What Was the U.S. GDP Then?" MeasuringWorth, 2008 Federal leadership intervention is highly debated on its effectiveness and overall participation. The Federal Reserve Act could not effectively tackle the banking crisis as state bank and trust companies were not compelled to be a member, paper eligible discount member banks heavily restricted access to the Federal Reserve, power between the twelve Federal Reserve banks was decentralized and federal level leadership was ineffective, inexperienced, and weak.
The unregulated growth of small rural banking institutions can be partially attributed to the rising cost of agriculture especially in the Corn Belt and Cotton Belt. Throughout the corn and cotton belts real estate increases drove the demand for more local funding to continue to supply rising agricultural economics. The rural banking structures would supply the needed capital to meet the farm commodity market, however, this came with a price of reliability and low risk lending. Economic growth was promising from 1887 to 1920 with an average of 6 percent growth in GDP. In particular the participation in World War I drove a booming agricultural market that drove optimism at the consumer and lending level which, in turn, resulted in a more lax approach in the lending process. Overbanked conditions existed which pressured struggling banks to increase their services (specifically to the agricultural customers) without any additional regulatory oversight or qualifications. This dilemma introduced several high risk and marginal business returns to the banking market.Federal Reserve Board 1933, 67. Banking growth would continue through the first two decades well outside of previous trends disregarding the current economic and population standards. Banking profitability and loan standards begin to deteriorate as early as 1900 as a result. Crop failures beginning in 1921 began to impact this poorly regulated system, the expansion areas of corn and cotton suffered the largest due to the dust bowl era resulting in real estate value reductions. In addition, the year 1921 was the peak for banking expansion with roughly 31,000 banks in activity, however, with the failures at the agricultural level 505 banks would close between 1921 -1930 marking the largest banking system failure on record. Regulatory questions began to hit the debating table around banking qualifications as a result; discussions would continue into the Great as not only were banks failing but some would disappear altogether with no rhyme or reason.Walter, John R. "Failures: The Great Contagion or the Great Shakeout?" Federal Reserve Bank of Richmond Economic Quarterly Volume 91/1 Winter 2005 91.1 (2005): 39-53. Web. 21 May 2017. The panic of financial crisis would increase in the Great Depression due to the lack of confidence in the regulatory and recovery displayed during the 1920s, this ultimately drove a nation of doubts, uneasiness, and lack of consumer confidence in the banking system.
Whether this caused the Great Depression is still heavily debated due to many other attributing factors. However, it is evident that the banking system suffered massive reductions across the country due to the lack of consumer confidence. As withdraw requests would exceed cash availability banks began conducting steed discount sales such as fire sales and short sales. Due to the inability to immediately determine current value worth these fire sales and short sales would result in massive losses when recuperating any possible revenue for outstanding and defaulted loans. This would allow healthy banks to take advantage of the struggling units forcing additional losses resulting in banks not being able to deliver on depositor demands and creating a failing cycle that would become wide spread.Walter, John R. "Failures: The Great Contagion or the Great Shakeout?" Federal Reserve Bank of Richmond Economic Quarterly Volume 91/1 Winter 2005 91.1 (2005): 45-46. Web. 2005 Investment would continue to stay low through the next half decade as the private sector would horde savings due to uncertainty of the future. The federal government would run additional policy changes such as the Check tax, monetary restrictions (including reduction of money supply by burning), High Wage Policy, and The New Deal through the Hoover and Roosevelt administration.
Unemployment reached 25 percent in the worst days of 1932-33, but it was unevenly distributed. Job losses were less severe among women, workers in nondurable industries (such as food and clothing), services and sales workers, and those employed by the government. Unskilled inner city men had much higher unemployment rates. Age also played a factor. Young people had a hard time getting their first job. Men over the age of 45, if they lost their job, would rarely find another one because employers had their choice of younger men. Millions were hired in the Great Depression, but men with weaker credentials were not, and they fell into a long-term unemployment trap. The migration in the 1920s that brought millions of farmers and townspeople to the bigger cities suddenly reversed itself. Unemployment made the cities unattractive, and the network of kinfolk and more ample food supplies made it wise for many to go back.Richard J. Jensen, "The causes and cures of unemployment in the Great Depression." Journal of Interdisciplinary History (1989): 553-583 in JSTOR; online copy City governments in 1930-31 tried to meet the depression by expanding public works projects, as President Herbert Hoover strongly encouraged. However, tax revenues were plunging, and the cities as well as private relief agencies were totally overwhelmed by 1931; no one was able to provide significant additional relief. People fell back on the cheapest possible relief, including soup kitchens providing free meals to anyone who showed up.Janet Poppendieck, Breadlines knee-deep in wheat: Food assistance in the Great Depression (2014) After 1933, new sales taxes and infusions of federal money helped relieve the fiscal distress of the cities, but the budgets did not fully recover until 1941.
The federal programs launched by Hoover and greatly expanded by President Roosevelt's New Deal used massive construction projects to try to jump start the economy and solve the unemployment crisis. The alphabet agencies ERA, CCC, FERA, WPA and PWA built and repaired the public infrastructure in dramatic fashion, but did little to foster the recovery of the private sector. FERA, CCC and especially WPA focused on providing unskilled jobs for long-term unemployed men.
The Democrats won easy landslide victories in 1932 and 1934, and an even bigger one in 1936; the hapless Republican Party seemed doomed. The Democrats capitalized on the magnetic appeal of Roosevelt to urban America. The key groups were low skilled ethnics, especially Catholic, Jewish, and black people. The Democrats promised and delivered in terms of political recognition, labor union membership, and relief jobs. The cities' political machines were stronger than ever, for they mobilized their precinct workers to help families who needed help the most navigate the bureaucracy and get on relief. FDR won the vote of practically every demographic in 1936, including taxpayers, small business and the middle class. However, the Protestant middle class voters turned sharply against him after the recession of 1937-38 undermined repeated promises that recovery was at hand. Historically, local political machines were primarily interested in controlling their wards and citywide elections; the smaller the turnout on election day, the easier it was to control the system. However, for Roosevelt to win the presidency in 1936 and 1940, he needed to carry the electoral college and that meant he needed the largest possible majorities in the cities to overwhelm rural voters. The machines came through for him.Roger Biles, Big City Boss in Depression and War: Mayor Edward J. Kelly of Chicago (1984). The 3.5 million voters on relief payrolls during the 1936 election cast 82% percent of their ballots for Roosevelt. The rapidly growing, energetic labor unions, chiefly based in the cities, turned out 80% for FDR, as did Irish, Italian and Jewish communities. In all, the nation's 106 cities over 100,000 population voted 70% for FDR in 1936, compared to his 59% elsewhere. Roosevelt worked very well with the big city machines, with the one exception of his old nemesis, Tammany Hall in Manhattan. There he supported the complicated coalition built around the nominal Republican Fiorello La Guardia, and based on Jewish and Italian voters mobilized by labor unions.Mason B. Williams, City of Ambition: FDR, LaGuardia, and the Making of Modern New York (2013)
In 1938, the Republicans made an unexpected comeback, and Roosevelt's efforts to purge the Democratic Party of his political opponents backfired badly. The conservative coalition of Northern Republicans and Southern Democrats took control of Congress, outvoted the urban liberals, and halted the expansion of New Deal ideas. Roosevelt survived in 1940 thanks to his margin in the Solid South and in the cities. In the North the cities over 100,000 gave Roosevelt 60% of their votes, while the rest of the North favored Willkie 52%-48%.Richard Jensen, "The cities reelect Roosevelt: Ethnicity, religion, and class in 1940." Ethnicity. An Interdisciplinary Journal of the Study of Ethnic Relations (1981) 8#2: 189-195.
With the start of full-scale war mobilization in the summer of 1940, the economies of the cities rebounded. Even before Pearl Harbor, Washington pumped massive investments into new factories and funded round-the-clock munitions production, guaranteeing a job to anyone who showed up at the factory gate.Jon C. Teaford, The twentieth-century American city (1986) pp 90-96. The war brought a restoration of prosperity and hopeful expectations for the future across the nation. It had the greatest impact on the cities of the West Coast, especially Los Angeles, San Diego, San Francisco, Portland and Seattle.Roger W. Lotchin, The Bad City in the Good War: San Francisco, Los Angeles, Oakland, and San Diego (2003)
Economic historians led by Price Fishback have examined the impact of New Deal spending on improving health conditions in the 114 largest cities, 1929-1937. They estimated that every additional $153,000 in relief spending (in 1935 dollars, or $1.95 million in year 2000 dollars) was associated with a reduction of one infant death, one suicide, and 2.4 deaths from infectious disease.
Cities all around the world were hit hard, especially those dependent on heavy industry. Construction was virtually halted in many countries. Farming and rural areas suffered as crop prices fell by approximately 60%.Willard W. Cochrane, Farm prices: myth and reality (U of Minnesota Press, 1958)League of Nations, World Economic Survey 1932–33 (1934) p. 43 Facing plummeting demand with few alternate sources of jobs, areas dependent on primary sector industries such as grain farming, mining and logging, as well as construction, suffered the most.Broadus Mitchell, Depression Decade: From New Era through New Deal, 1929–1941 (1947),
Most economies started to recover by 1933–34. However, in the U.S. and some others the negative economic impact often lasted until the beginning of World War II, when war industries stimulated recovery.Garraty, Great Depression (1986) ch 1
There is little agreement on what caused the Great Depression, and the topic has become highly politicized. At the time the great majority of economists around the world recommended the "orthodox" solution of cutting government spending and raising taxes. However, British economist John Maynard Keynes advocated large-scale government deficit spending to make up for the failure of private investment. No major nation adopted his policies in the 1930s.Robert Skidelsky, "The Great Depression: Keynes´s Perspective," in: Elisabeth Müller-Luckner, Harold James, The Interwar Depression in an International Context," (2002) p. 99
In terms of the financial reform, since the recession, Hoover had been trying to repair the economy. He founded government agencies to encourage labor harmony and support local public works aid which promoted cooperation of government and business, stabilize prices, and strive to balance the budget. His work focused on indirect relief from individual countries and the private sector, which was reflected in the letter emphasizing "more effective supporting for each national committee" and volunteer service -" appealing for funding" from outside the government. The commitment to maintain the gold standard system prevented the Federal Reserve expanded its money supply operations in 1930 and 1931, and it promoted Hoover's destructive balancing budgetary action to avoid the gold standard system overwhelming the dollar. As the Great Depression became worse, the call raised for increasing in federal intervention and spending. But Hoover refused to allow the federal government to force fixed prices, control the value of the business or manipulate the currency, in contrast, he started to control the dollar price. For official dollar prices, he expanded the credit base through free market operations in federal reserve system to ensure the domestic value of the dollar. He also tended to provide indirect aid to banks or local public works projects, refused to use federal funds to give aid to citizens directly, which will reduce public morale. Instead, he focused on volunteering to raise money. Even though Hoover was a philanthropist before becoming president, his opponents regarded him as not responsible for the citizens. During the administration of Hoover, the US economic policies had moved to activism and interventionism. In his re-election campaign, Hoover tried to persuade the Americans to claim that the measures they requested seemed to be helpful in the short term, but it would be devastating in the long run. Eventually, he was defeated by Franklin Roosevelt in 1932.
In 1931, "the tragic year", politicians and economists were convinced that the economy would recover in 1931, but a serious economic crisis and depression happened this year. In a somewhat critical atmosphere, at the Congress meeting in 1932, Hoover prepared to take more vigorous measures in the government work report which he submitted to the Congress. Primarily, Hoover affirmed his own achievements over the past two years. Owing to Hoover's policy having led to financial spending increases and financial difficulties, he decided to increase taxes.
The National Recovery Administration (NRA) sought to stimulate demand and provide work and relief through increased government spending. To end deflation the gold standard was suspended and a series of panels comprising business leaders in each industry set regulations which ended what was called "cut-throat competition," believed to be responsible for forcing down prices and profits nationwide.Olivier Blanchard und Gerhard Illing, Makroökonomie, Pearson Studium, 2009, , pp. 696–97 Several Hoover agencies were continued, most notably the Reconstruction Finance Corporation, which provided large-scale financial aid to banks, railroads, and other agencies.James Stuart Olson, Saving Capitalism: The Reconstruction Finance Corporation and the New Deal, 1933–1940 (2nd ed. 2017). Reforms that had never been enacted in the 1920s now took center stage, such as the Tennessee Valley Authority (TVA) designed to electrify and modernize a very poor, mountainous region in Appalachia.
In 1934–36 came the much more controversial "Second New Deal." It featured social security; the Works Progress Administration (WPA), a very large relief agency for the unemployed run by the federal government; and the National Labor Relations Board, which operated as a strong stimulus to the growth of labor unions. Unemployment fell by ⅔ in Roosevelt's first term (from 25% to 9%, 1933–1937). The second set of reforms launched by the Roosevelt Administration during the same period, which is a responsibility for social welfare with the main legislation —— Social Security Act in 1935. Insurance and poor relief (“public assistance” or “welfare”)are constituent parts of the legislation that provided pensions to the aged, benefit payments to dependent mothers, crippled children and blind people, and unemployment insurance. The Social Security Act still plays a significant role of the American health and human service system so far. Much of the economy had recovered by 1936, but persistent, long-term unemployment lasted until rearmament began for World War II in 1940.Broadus Mitchell, Decade: From New Era through New Deal, 1929–1941'' (1964)
The New Deal was, and still is, sharply debated.Parker, ed. Reflections on the Great Depression (2002) The business community, with considerable support from such conservative Democrats as Al Smith, launched a crusade against the New Deal, warning that a dangerous man had seized control of the economy and threatened America's conservative traditions.Kim Phillips-Fein, Invisible Hands: The Businessmen's Crusade Against the New Deal (2010). Scholars remain divided as well. When asked whether "as a whole, government policies of the New Deal served to lengthen and deepen the Great Depression," 74% of American university professors specializing in economic history disagreed, 21% agreed with provisos, and 6% fully agreed. Among respondents who taught or studied economic theory, 51% disagreed, 22% agreed with provisos, and 22% fully agreed.Robert Whaples, "Where Is There Consensus Among American Economic Historians? The Results of a Survey on Forty Propositions," Journal of Economic History, Vol. 55, No. 1 (Mar., 1995), pp. 139–154 in JSTOR see also the summary at
The Roosevelt Administration reacted by launching a rhetorical campaign against monopoly power, which was cast as the cause of the depression, and appointing Thurman Arnold to break up large trusts; Arnold was not effective, and the campaign ended once World War II began and corporate energies had to be directed to winning the war.Gene M. Gressley, "Thurman Arnold, Antitrust, and the New Deal," Business History Review, Vol. 38, No. 2, pp. 214–231 in JSTOR By 1939, the effects of the 1937 recession had disappeared. Employment in the private sector recovered to the level of the 1936 and continued to increase until the war came and manufacturing employment leaped from 11 million in 1940 to 18 million in 1943.Kenneth D. Roose, "The Recession of 1937–38" Journal of Political Economy, Vol. 56, No. 3 (Jun., 1948), pp. 239–248 in JSTOR
Another response to the 1937 deepening of the Great Depression had more tangible results. Ignoring the pleas of the Treasury Department, Roosevelt embarked on an antidote to the depression, reluctantly abandoning his efforts to balance the budget and launching a $5 billion spending program in the spring of 1938 in an effort to increase mass purchasing power.
Business-oriented observers explained the recession and recovery in very different terms from the Keynesian economists. They argued the New Deal had been very hostile to business expansion in 1935–37. They said it had encouraged massive strikes which had a negative impact on major industries and had threatened anti-trust attacks on big corporations. But all those threats diminished sharply after 1938. For example, the antitrust efforts fizzled out without major cases. The CIO and AFL unions started battling each other more than corporations, and tax policy became more favorable to long-term growth.Gary Dean Best, Pride, Prejudice, and Politics: Roosevelt Versus Recovery, 1933–1938 (1990) pp 175–216
On the other hand, according to economist Robert Higgs, when looking only at the supply of consumer goods, significant GDP growth only resumed in 1946. (Higgs does not estimate the value to consumers of collective goods like victory in war)Robert Higgs, "Wartime Prosperity? A Reassessment of the U.S. Economy in the 1940s," Journal of Economic History, Vol. 52, No. 1 (Mar., 1992), pp. 41–60 To Keynesians, the war economy showed just how large the fiscal stimulus required to end the downturn of the Depression was, and it led, at the time, to fears that as soon as America demobilized, it would return to Depression conditions and industrial output would fall to its pre-war levels. The incorrect prediction by Alvin Hansen and other Keynesians that a new depression would start after the war failed to take account of pent-up consumer demand as a result of the Depression and World War.Theodore Rosenof, Economics in the Long Run: New Deal Theorists and Their Legacies, 1932–1993 (1997)
Using these cost-plus contracts in 1941–1943, factories hired hundreds of thousands of unskilled workers and trained them, at government expense. The military's own training programs concentrated on teaching technical skills involving machinery, engines, electronics and radio, preparing soldiers and sailors for the post-war economy.Jensen (1989); Edwin E. Witte, "What The War Is Doing to Us". Review of Politics. (Jan. 1943). 5(1): 3–25
Structural walls were lowered dramatically during the war, especially informal policies against hiring women, minorities, and workers over 45 or under 18. (See FEPC) Strikes (except in coal mining) were sharply reduced as unions pushed their members to work harder. Tens of thousands of new factories and shipyards were built, with new bus services and nursery care for children making them more accessible. Wages soared for workers, making it quite expensive to sit at home. Employers retooled so that unskilled new workers could handle jobs that previously required skills that were now in short supply. The combination of all these factors drove unemployment below 2% in 1943.Harold G. Vester. The U.S. Economy in World War III. (1988)
Roosevelt's declining popularity in 1938 was evident throughout the US in the business community, the press, and the Senate and House. Many were labeling the recession the "Roosevelt Recession". In late December 1938, Roosevelt looked to gain popularity with the American people, and try to regain the nation's confidence in the economy. His decision that December to name Harry Hopkins as Secretary of Commerce was an attempt to achieve the confidence he so badly needed. The appointment came as a surprise to most because of Hopkins' lack of business experience, but proved to be vastly important in shaping the years following the recession.Smiley, Gene. Rethinking the Great Depression. Chicago: Ivan R. Dee, publisher. 2002.
Hopkins made it his mission to strengthen ties between the Roosevelt administration and the business community. While Roosevelt believed in complete reform (The New Deal), Hopkins took a more administrative position; he felt that recovery was imperative and that The New Deal would continue to hinder recovery. With support from Secretary of Agriculture Henry Wallace and Treasury Secretary Henry Morgenthau, Jr, popular support for recovery, rather than reform, swept the nation. By the end of 1938 reform had been struck down, as no new reform laws were passed.
The economy in America was now beginning to show signs of recovery and the unemployment rate was lowering following the abysmal year of 1938. The biggest shift towards recovery, however, came with the decision of Germany to invade France at the beginning of WWII. After France had been defeated, the U.S. economy would skyrocket in the months following. France's defeat meant that Britain and other allies would look to the U.S. for large supplies of materials for the war.Hall, Thomas E., and Ferguson, David J. "The Great Depression: An International Disaster of Perverse Economic Policies". Ann Arbor: University of Michigan Press. 1998. pg 155
The need for these war materials created a huge spurt in production, thus leading to promising amount of employment in America. Moreover, Britain chose to pay for their materials in gold. This stimulated the gold inflow and raised the monetary base, which in turn, stimulated the American economy to its highest point since the summer of 1929 when the depression began.
By the end of 1941, before American entry into the war, defense spending and military mobilization had started one of the greatest booms in American history thus ending the last traces of unemployment.