The Great Depression in its simplest definition, can be defined as the highest signifier of economic recession. It can besides be regarded as the economic crisis which started with the stock market clang of 1929 in the United States and continued through the 1930s. This was a period characterised with monolithic unemployment and a entire fiscal meltdown. However, it is worthwhile observing that the Great Depression did non get down in a twenty-four hours ; instead there were series of events which took topographic point before and finally led to the depression. This essay would try to intricately explicate the events which took topographic point before the depression, during the depression, and measure the assorted solutions employed in turn toing the issue- specifically the Keynesian solution and its relation to Fordism.
As mentioned earlier, series of events led to the economic recession which subsequently deteriorated to the Great Depression. Years back, the thoughts of classical economic experts like Adam Smith, Professor Lionel Robbins, Jean-Baptiste Say on how to run the economic system was majorly utilised in the universe. Adam Smith was of the sentiment that authorities should non interfere in the freedom to trade of citizens. His political orientation was known as the individualistic economic system, which means a free-market system. He besides argued that International Trade which was based on Absolute Advantage was of great benefit. Adam Smith is regarded as the male parent of Capitalism, Division of Labour and Specialization. This was showcased in the Pin Factory. It was all about Capitalism whereby the agencies of production distribution and exchange were in the custodies of persons. More significantly, Smith argued that the market should be the chief regulative mechanism in the economic system. He believed that the market would automatically convey about the necessary accommodation in the economic system i.e. concern rhythm. However, Adam Smith was against Anarchy. Furthermore, the thoughts of Jean-Baptiste Say which was regarded as the Say ‘s Law or the jurisprudence of market was besides an influencing factor in the nineteenth Century. He stated that ”products are paid for with merchandise ” , and that prosperity should be increased by exciting production non ingestion. He was of the sentiment that creative activity of more money leads to rising prices ; and that more money demanding the same measure of goods does n’t stand for an addition in existent demand. He besides viewed the market as the chief regulative mechanism in the economic system.
Second, another event which took topographic point before the Great Depression was the Industrial Revolution. It was a period around 1750, which began in England in which the universe moved from the ”old mode of making things into a better, re-organised and more effectual manner ” . It was a period whereby series of technological progresss were made in different portion of the economic system including agribusiness, fabrication, warfare etc. It besides formed the footing for a mass motion from rural to urban countries in hunt of manufacturing/factory work. Adam Smith created the political orientation of capitalist economy which helped impel the industrial revolution. This was a period of urbanization, high life criterions which brought about monolithic addition in population, development, trading and selling. It was besides a period of rough on the job conditions and child labor.
Third, another of import event before the Great Depression was the wake of the First World War which brought a lay waste toing consequence on the economic system of Europe, and a really high degree of casualties. This was partially due to the engineering promotion attained as a consequence of the Industrial Revolution, whereby deadlier arms including bombs, heavy weapons, and armored combat vehicles were invented. The war finally brought about Recession and monolithic rising prices. There was a heavy autumn in the criterions of life, and it besides brought about a alteration in the fiscal Centre of the universe i.e. from Europe and Great Britain to America. This was because most European states became debtor states and accordingly resulted in an addition in USA ‘s economic strength. Furthermore, due to the high degree of rising prices, Europe reverted to the Gold Standard. The Gold Standard can be defined as a system whereby the value of a currency is defined in footings of gold before it could be used for exchange. That is, before trade could happen, the currency had to be converted in footings of gold. This was because currencies lost their value due to wide-spread circulation. However, alternatively of the gilded criterion assisting to work out the economical jobs of the universe, it became a tool for the rapid circulation of crisis from state to state due to high trade shortages, and finally led to a dislocation in International Trade.
Finally, the Stock Market Crash of 1929 which occurred in the United States and still ranks as the most important clang in the US history. The clang began on October 24, 1929, a twenty-four hours regarded as the Black Thursday. What made it so bad was because of the religion people had in the New York Stock Exchange and hence everyone invested in it, and besides because the stock market had risen with an norm of 20 % a twelvemonth. Additionally, people who could non afford to put were encouraged through a fiscal motive called ”buying on border ” whereby they merely had to set 10-20 % down and borrow the remainder from their stockbrokers. Therefore, when the market crashed, agents requested for their loans, many people were wiped out selling concerns and losing life nest eggs. One astonishing fact of the stock market clang was that, the sum of money lost in the clang was more than the entire cost of WW1. Peoples lost religion in the economic system and the eventual consequence was the Great DEPRESSION.
The chief job confronting economic expert, authorities, business communities etc. during the Great Depression was how to bring forth growing despite lifting rewards. However, before I begin with the account of the happenings during the Great Depression, a inquiry that might start into 1 ‘s head is that: what steps did the classical economic experts take in work outing this job? The reply is simple: they could merely reiterate the same old solutions i.e. pay decrease to increase employment. This in fact did small or nil in work outing the job.
A major happening during the great depression ( which would subsequently be referred to as G.D ) was the failure of market mechanisms which included the labor market. As said earlier, alternatively of positive alterations, pay fell with employment thereby intensifying the crisis. However the sarcasm in this state of affairs was that in the G.D, there was big scale unemployment, rewards fell and yet there were n’t new investings. This was a consequence of Unionism among workers ; the workers fought for brotherhood acknowledgment, higher rewards and were against unemployment. This was the beginning of labour brotherhoods. In a command to halt these agitations, mill proprietors employed the construct of Taylorism. Taylorism can be defined as the division of work into really de-skilled occupations such that each worker had merely a limited occupation that required small accomplishment and was merely a little portion of the production procedure. This was resisted by the brotherhoods e.g. United Automobile Workers and they engaged in assorted battles which were largely violent. This created a state of affairs in which rewards became gluey downwards i.e. rewards could lift and even with the high degree of unemployment could no longer be forced down to reconstruct net income, thereby rendering the classical methods useless.
Second, the consequence of the gilded criterion ( breakdown of international trade ) became more planetary because states had to export gold to pay for the extra imports over exports, ensuing in monolithic downward force per unit area on monetary values and rewards and accordingly cut downing end product and unemployment. States tried to cut down importings and increase exportation thereby conveying a entire diminution in universe trade and this prompted the forsaking of the Gold Standard.
Last, there was a monolithic rate of unemployment due to the factors listed above, GDP fell by 30 % , 40 % of Banks closed and the G.D served as a factor which stirred the Russian Revolution. All these served to turn out that the old solutions were no more on the job and that new solutions had to be discovered to work out the crisis.
In an effort to work out the G.D, leading of different states tried different ways harmonizing to their historical, societal and political background. For illustration, in Russia, Stalin tried to raise excess shortage by using forced labor, Hitler tried to halt workers revolt by commiting Nazism etc. However, in the US, Roosevelt tried to practicalize the thoughts of an English economic expert called John Maynard Keynes ( 1883-1946 ) which was subsequently regarded as the Keynesian Economics/Solution. He was referred to as the male parent of macro-economics.
As mentioned earlier, the general job of how to bring forth growing despite lifting rewards was a major inquiry during the G.D ; and besides the classical economic expert still regarded the market as the regulative mechanism in the economic system. However, Keynes faulted such political orientation and he attempted to work out the general job with his theories.
To get down with, Keynes noticed the increasing power of labor and he reasoned that, through the Labour Unions, workers would non hold for their rewards to be reduced. He gave an illustration of the general work stoppage of 1926, and due to this concluded that decreases in cost and an addition in gross revenues had to be sought through other agencies. Keynes sought a solution whereby both rewards and net income could lift nevertheless the solution would necessitate intercession of the province in the economic system to excite a growing in productiveness and end product. He theorized that authorities must concentrate on financial policy, which would bring on houses to increase investing, employment and hence an end product which can enable an addition in rewards. He merely put that ”in order to hold lifting rewards and at the same clip have lifting net income, the growing of rewards must be synonymous to the degree of productiveness ” . This means that if there is high labor end product per hr, with a high degree of ingestion which is due to high rewards, net incomes would at the same time turn. This was a simple solution called the Fordism Solution.
The name ”Fordism ” was coined from a adult male named Henry Ford. He was called the male parent of mass production. Ford was involved in the devising of cars which was aimed at a mass market and as all concern work forces, wanted net income and in order to accomplish that due to the high degree of cost involved in production procedure, he wanted everybody to purchase his autos even his workers. He therefore paid his workers to such an extent in which they could afford the autos they were doing. Ford had a clear position of the indispensable function of rewards in concluding demand. He noticed that rewards were indispensable to the growing and enlargement of ingestion oriented production ; that is before consumers can afford to buy a merchandise, they must hold sufficient money which comes from rewards. So effectual was this political orientation that Fordism became a cardinal construct in the development of modern capitalist economy. It was this political orientation that Keynes sought to use at the national degree.
Having known the solution, Keynes proposed for the province intercession in implementing such thoughts. For illustration, in the US, Roosevelt had to coerce concern work forces to accept the thought by back uping labour brotherhoods, thereby seting force per unit area on concern work forces to either raise productiveness to pay for rewards or lose their managerial functions. Besides, the authorities in order to strike a balance between pay and productiveness, created a clause in the activities of the trade brotherhoods called the ”productivity trade ” . This was a trade in which workers would hold accept assorted alterations in work regulations in exchange for higher rewards. Furthermore, concerns had to move jointly to enable increased investings ; moreover the wake of the WW2 resulted in monolithic authorities intercession in the economic system. All these served to explicate the importance placed by Keynes on the function of the province as the regulative mechanism in the economic system, and the Keynesian system worked for 20 five old ages. Additionally, due to the rise of America after universe war two, and the success of the Keynesian solution in the US, the Keynesian solution was applied in other parts of the western universe. This was done through understandings signed at a conference at Bretton Woods in 1944. The understanding replaced the pre-war system of the gilded criterion in the 1930s. Under this understanding, states were to hold fixed exchange rates, there was the ”adjustment mechanism ” whereby states were to hold foreign exchange militias, in instance of short term instabilities and there was besides the creative activity of the International Monetary Fund ( IMF ) and its functions. Besides the dominant function of the dollar was showcased. However, the Bretton Woods system broke down in 1971.
In decision, every bit good as the Keynesian Solution was, it was non free from unfavorable judgment. Noteworthy critics includes Milton Friedman who advocated for a policy known as ”monetarism ” , Robert Lucas who founded a theory called ”rational outlooks ” and so on. However, none of this critics could supply a better and a more dependable solution which could stand the trial of clip as the Keynesian solution did. The Keynesian Solution was seemingly the most utilized and successful discovery during the Great Depression, and even though it collapsed so, the thoughts still remain an built-in portion on how the universe economic system is still being managed.