The Surprising Benefits of the Great Depression
There’s no debate that the Great Depression in the U.S. was in important respects an economic disaster. Bank failures and a broader financial crisis coincided with an 87 percent decline in real gross private domestic investment from 1929 to 1932. Double-digit unemployment for more than a decade represented a terrible waste of human and other resources, and untold hardship for millions of people.
And yet the Depression years were also a triumph of American ingenuity and hard work. Scientific and organizational advances expanded the capabilities -- the potential output -- of the economy. They helped the U.S. win World War II and set the stage for a quarter century of postwar prosperity.
This expansion in potential -- and, when demand conditions permitted, actual output -- resulted from three developments.
The second development was the government-funded construction of the surface road network. The U.S. produced more than 4 million passenger vehicles in 1929, a level of production not reached again for 20 years. The growth of vehicle registrations outran the capabilities of the infrastructure.
Finally, some businesses, notably the railroads, underwent significant rationalization and standardization during the Great Depression. True, progress toward unlimited freight interchange had begun with gauge standardization in the 1880s and continued during World War I. But although the U.S. had a national rail network by the late 1920s, it consisted of individual lines owned and operated by private firms.
Developing uniform procedures and tariffs governing interline transactions allowed huge efficiency gains in the 1930s. The number of employees, locomotives, freight cars and passenger cars each dropped by between a quarter and a third from 1929 to 1941. Yet revenue freight ton-miles in 1941 were slightly higher than in 1929, and passenger miles were almost as high. These ratios translated into significant productivity gains.
The effect of these three developments? Real output in 1941 was 33 percent to 40 percent higher than it had been in 1929 (depending on what output measures are used). Yet private-sector labor hours and physical capital inputs had hardly grown. All of the increases in output can be attributed to what we call total productivity growth, a measure of technological and organizational progress in this truly extraordinary period.
(Alexander J. Field is the Michel and Mary Orradre professor of economics at Santa Clara University and the executive director of the Economic History Association. He is the author of “A Great Leap Forward: 1930s Depression and U.S. Economic Growth,” published by Yale University Press in 2011. The opinions expressed are his own.)
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