17. The recession of 1937 damaged the economy again
It is an often repeated myth that the Great Depression did not end until the United States military production ended it during the Second World War. In fact, by 1937 production and wages had been restored to the levels of 1929. Profits by industry had also recovered to their pre-depression levels. Farm profits had stabilized, and in many cases improved to levels never before seen by the agricultural industry. Unemployment remained higher than in 1929, but had dropped to just below 15% by the spring of 1937 (from a high of 25%). Then it shot up again. By late 1937 the economy again fell into a recession which lasted through much of 1938. Although neither as devastating nor as severe as the Great Depression (average personal income grew throughout the recession), it was nonetheless an economic setback which was quickly politicized.
The New Deal was blamed for the recession by conservatives, who argued that Roosevelt’s policies had been damaging to business. Social Security was resurrected as a contributing cause, with conservatives claiming the program had removed too much cash from the money supply. Roosevelt argued that the recession was caused by big business which wanted to remove the worker’s safeguards the New Deal had installed. Franklin Roosevelt opposed deficit spending throughout his Presidency (which was one reason for the Social Security payroll deduction), but in early 1938 he authorized a $5 billion dollar program to stimulate the economy through government investment, ensuring that the budget for that year would be in deficit. By mid-1938 the economy had for the most part recovered. The causes of the recession of 1937 are still debated among historians and economists.