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The Classical Model And The Great Depression.

2084 words - 8 pages

1920 was a great decade to live in. Our country's economy was booming, people made enough money to splurge once in a while. Cars, movies, dance marathons, and the radio were many things being splurged on in our country. Cars had just become popular, thanks to Henry Ford who invented the push line. The push line turned production to a new level. Instead of one person doing all three jobs required in building something, one person was assigned to each job. This caused production to skyrocket, lowering costs, and therefore increasing profits. Henry Ford spent his increased profits on his consumers and employees. Not only did he lower the cost of the model T from $5,000 to $300, but he also doubled his employees' wages. Dance marathons were another popular thing to spend money on. These marathons would last months at a time. A person could go for only a quarter and stay as long as they wished. Favorite dancers would put on drama shows, fake marriages, and have coins thrown at them. Movies were just being introduced as well, and the theatre of every town was a busy place. Our country at the time was the closest it's been excluding the possibility of our 911 era today. One of the main causes for this was the radio. The radio made it possible for people from every town to listen to the same shows, and hear the same news, all across the country. People could hear things on the radio that resembled the way they felt about an issue. Not only did the radio cause our nation to come together, it also caused families to come together. Typical families had radios they would set near the fire, and listen to them every evening. Life was great...until the dramatic downfall of our economy known as the great depression. The great depression is remembered as the worst ten years our country has yet to see. Economists today are still debating the causes of the great depression, and how we're going to avoid this from happening again. Most economists at the time were known as classical economists. Without a doubt these people did not go without work, they were busy figuring out what was going on with our economy and how to fix it. The majority of classical economists came up with something called the classical model. The classical model explains the economy with three basic assumptions. First the theory that supply drives demand was attributable to Jean Baptiste Say, and became known as Say's law. Second, it was believed that the velocity of money (the time it takes for currency to go through the business cycle) was a constant rate of 4. Finally it was assumed that employment rate was zero, and would remain constant. With these assumptions, the infamous saying "prosperity is just around the corner" was born. These theories, in a perfect world could be correct, but in this world they are not. Because these assumptions were wrong, and the "corner" took about ten years to arrive. It is only fair to discuss the major points of the research that I have completed so far on...

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