World War II and / or The New Deal ended the Great Depression

There are two commonly heard theories about what ended the Great Depression. Some people will tell you that it was WWII and other people will tell you it was the New Deal. The reality is they are both wrong. Neither of these things ended the great depression actually they both made it worse. That's why it's called 'The Great Depression' and not 'That minor economic downturn of 1929'. To understand why this is so you must first understand why recessions happen. A key feature of recessions is the cluster of errors. Businessmen are pretty good at generating profits. Of course not everyone always makes money in the market place, but for the most part they do profit, most of the time. So why is it that suddenly they all start doing so poorly? The answer must have something to do with money, because money is the only thing which touches all areas of the economy. Remember we are dealing with problems not in one specific area of the economy but in every sector. Interest rates are determined on the market by the amount of money consumers set aside for savings. That is to say, the higher consumer time preferences are (if you have a high time preference you value having things now instead of in the future whereas if you have a low time preference you'd be more of a saver) the higher interest rates would be if they were determined by market forces alone instead of by Ben Bernanke's meddling. When the government artificially lowers interest rates, this sends out false signals to entrepreneurs that consumer time preferences have lowered. This creates malinvestment. Ultimately these investments must be liquidated and thus you have the bust. The bust is actually the healthy part of the boom-bust cycle, when these resources are shifted from capital goods industries back to consumer goods industries. If economic busts or depressions are then healthy, if these readjustments are important, you can see why it might be a bad idea to prevent these readjustments. This is not to say that booms and busts are an inevitable part of capitalism. Far from it. They are simply the result of fiat money and central banks. With sound money - like a gold standard - and free banking there would be no boom and bust cycle, just steady prosperity. But given that there has been government manipulation of interest rates in the past, and you are now at a depression, the last thing you want to do is have the government try to fix the problem it created in the first place. Thus when Roosevelt's New Deal (actually it was not FDR's new deal he was himself a simple minded man not given to imaginative solutions, he just took what Hoover was doing and expanded upon it greatly) attempted to solve the depression by paying farmers to kill pigs or keeping wages artificially high he actually made it much much worse. What then of WWII? It is simply a myth - and a very dangerous myth - that war is good for the economy. It is not. War is horribly destructive. The broken window fallacy explains why. Take the example of a shop keeper who's window is broken by a boy playing ball. At first glance this looks like it is good for the economy. The shop keeper must purchase glass from the glass maker, who can then afford to get his car fixed, the mechanic can use this money to buy a new bike etc. But what would have happened if the window were not broken? Then the shop keeper could have spent his money on something else, a new suit perhaps, and the tailor could go to the opera, and the opera house could spend that money on fixing one of it's broken seats etc. War consumes a tremendous amount of resources and it also ends peoples lives. Those resources could instead have been put into capital, such as building new factories, which would then have created more jobs and created more wealth coming from those factories. If the government were to force companies to make two million cars and then drive them into the ocean, would this be good for the economy? That is pretty much what war is - a vast waste of resources, material and lives.