[johnhenry07]

I understand government spending, regime uncertainty, and general gov interference exacerbated the Great Depression, and some pullback of these things aided the post-war recovery. But I had been under the impression that the chief cause of the GD was that the malinvestments of the 20s were never properly liquidated due to Fed policies and gov spending. I also thought that WWII, with its price fixing, rationing, and planned economy, in some sense pressed the ‘reset’ button on the economy allowing lingering malinvestments to liquidate. Thus laying fertile ground for post-war growth. Is this view incorrect? Thank you very much for taking the time to answer these questions, it’s much appreciated!

[jmherbener]

What made the Great Depression great was that regime uncertainty suppressed investment so that not only did the mal-investments not get liquidated but the capital stock was consumed overall from lack of investing.

During WW2, government policies consumed even more of the capital stock as the capital structure was re-oriented toward war production. What led to the post-war boom was the reasonable expectation on the part of capitalists and entrepreneurs that the regime would be moving toward freer markets.

During the bust after the post-WW1 boom, the Harding administration moved toward freer markets and the liquidation and reconfiguration of the mal-invested portions of the capital structure was over rather quickly.

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