Facts Of The Great Depression Essay

1552 words - 6 pages

It may not give you why, but sure will give the facts as to what caused the depression Great paper!To my amazement the Great Depression serves as a natural debating point that 'justifies'or 'refutes' various economic policies. The Great Depression and the New Deal arecomplex topics that are open to many interpretations. The Great Depression was theworst economic slump ever in U.S. history, and one which spread to virtually all of theindustrialized world.Seeing the order in which events actually occurred dispels many myths about theGreat Depression. One of the greatest of these myths is that government intervention wasresponsible for its onset. Truly massive intervention began only under the presidency ofFranklin Roosevelt in 1933, who was sworn in after the worst had already hit. Althoughhis New Deal did not cure it, all the leading economic indicators improved during histenure.To understand the Great Depression, it is important to know the theories of JohnMaynard Keynes. Keynes is known as the 'father of modern economics' because he wasthe first to accurately describe some of the causes and cures for recessions anddepressions.In a normal economy, Keynes said, there is a circular flow of money. Myspending becomes part of your earnings, and your spending becomes part of my earnings.For various reasons, however, this circular flow can falter. People start hoarding moneywhen times become tough; but times become tougher when everyone starts hoardingmoney. This breakdown results in a recession.To get the circular flow of money started again, Keynes suggested that the centralbank, the Federal Reserve System, should expand the money supply. This would putmore money in people's hands (through the multiplier effect), inspire consumerconfidence, and compel them to start spending again.A depression, Keynes believed, is an especially severe recession in which peoplehoard money no matter how much the central bank tries to expand the money supply. Inthat case, he suggested that government should do what the people were not: startspending money. He called this 'priming the pump' of the economy. I think that mosteconomists believe that only massive U.S. defense spending in preparation for WorldWar II cured the Great Depression.After the success of Keyne's economic beliefs were proven, almost all freegovernments around the world became Keynesian. These policies have dramaticallyreduced the severity of recessions since then, and appear to have completely eliminatedthe depression from those who follow such economic beliefs throughout the world.Events of the 1920sThe Roaring Twenties were an era dominated by Republican presidents: WarrenHarding (1920-1923), Calvin Coolidge (1923-1929) and Herbert Hoover (1929-1933).Under their conservative economic philosophy of laissez-faire ('leave it alone'), marketswere allowed to operate without government interference. Taxes and regulation wereslashed dramatically, monopolies were allowed to form, and inequality of wealth...

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