This past week we discussed capitalism in relation to the Great Depression and the idea of changing neoclassical economics through Keynesian influences. Up to this point, what was known as "American capitalism" was seen as almost a solid fact of life that shouldn't be tampered with. The hit the Great Depression put on the economy changed this perspective forever. People began to doubt the system they loved and knew. Times of hardship brought some to believe that unchecked capitalist systems would continuously bring times of depression and recession, damaging the working class and poor to a severe extent.
Before the Great Depression, there was the prosperous 20's. A time when everyone was raking in the big bucks and the U.S. economy was flourishing. This all came tumbling down in 1929 when the stock market crashed and the Great Depression began. The capitalist economy that Americans loved had failed them and their belief in the system was in the balance. Appleby explains that "the Depression had exposed two great weaknesses of capitalism: its wayward oscillations between good and bad times and the vastly unequal distribution of wealth it produced" (291). According to her claim, capitalism fluctuates between good and bad times often and the unequal distribution of wealth was causing issues with the working classes.
American leaders knew a change had to be made to capitalism in order to avoid another disaster and central planning wasn't the answer so Keynesian ideals were adopted and more government involvement over the market was introduced. Neoclassical economics had failed the American public so changes weren't the worst idea, but some were weary to a new version of capitalism.
I think it's interesting that that capitalism of the early 1900's doesn't really exist anymore because the Depression caused people to reflect upon the pros and cons of capitalism and decide what changes were necessary. This reminds me of the financial crisis of 2008. Unchecked bank and financial business practices took a wrong turn and had the potential to cripple the economy on an international scale. Global leaders and economists reflected upon the situation and current state of capitalism and had to make decisions on government involvement and the good for all. I think we're still trying to figure out how to best organize our economy. What are your thoughts on the relation between the Depression and crisis of 2008? Do you think adjustments still need to be made in order to further avoid catastrophes that capitalism may cause (according to Appleby)?
Keynesian economics did change the way America looked at capitalism. It was not until War War II that the Great Depression ended. The mass war production the government initiated helped the U.S recover. This showed the strength of Keynesian economic which says that the government should intervene during economic struggles. The U.S. government is now the largest employer in the U.S. This helps the economy going because they money they pay their workers will be spent and the wheels of the economy will keep turning.
ReplyDeleteThis ultimately then put the pressure on the U.S to help the failing European economics. It was seen as their duty to make sure Europe recovers. One reason was because a weak Europe means a weak U.S. because a strong industrial power need other strong economies to buy the products they make. Another reason was the last time the economy became weak in a country like Germany a psychotic ruler came into power, Hitler. The Marshal Plan along with the Truman Doctrine helped democratic countries turn their economies around.
During this era countries pulled together to help one another, mainly the United States with the money they lent to European countries after WWII. With WWII started an up swing with employment by having the war industries which made more jobs for the people. People making more money meant people spending more money to get the economy boosted. With the recession of 2008 the banks just lent too much money out on credit that people could not pay back. The government got us out of this by giving money to big business to keep the economy from crashing. Unlike private or personal business, the government can operate in a deficit to get things back on track.
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