Abouts On The Great Depression - Abouts On The Great...

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Abouts On The Great Depression 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 are complex topics that are open to many interpretations. The Great Depression was the worst economic slump ever in U.S. history, and one which spread to virtually all of the industrialized world. Seeing the order in which events actually occurred dispels many myths about the Great Depression. One of the greatest of these myths is that government intervention was responsible for its onset. Truly massive intervention began only under the presidency of Franklin Roosevelt in 1933, who was sworn in after the worst had already hit. Although his New Deal did not cure it, all the leading economic indicators improved during his tenure. To understand the Great Depression, it is important to know the theories of John Maynard Keynes. Keynes is known as the "father of modern economics" because he was the first to accurately describe some of the causes and cures for recessions and depressions. In a normal economy, Keynes said, there is a circular flow of money. My spending 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 money when times become tough; but times become tougher when everyone starts hoarding money. This breakdown results in a recession. To get the circular flow of money started again, Keynes suggested that the central bank, the Federal Reserve System, should expand the money supply. This would put more money in people's hands (through the multiplier effect), inspire consumer confidence, and compel them to start spending again. A depression, Keynes believed, is an especially severe recession in which people hoard money no matter how much the central bank tries to expand the money supply. In that case, he suggested that government should do what the
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people were not: start spending money. He called this "priming the pump" of the economy. I think that most economists believe that only massive U.S. defense spending in preparation for World War II cured the Great Depression. After the success of Keyne's economic beliefs were proven, almost all free governments around the world became Keynesian. These policies have dramatically reduced the severity of recessions since then, and appear to have completely eliminated the depression from those who follow such economic beliefs throughout the world. Events of the 1920s
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Abouts On The Great Depression - Abouts On The Great...

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