Abouts On The Great Depression
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...
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