1930s Great Depression: What economic changes followed?

The 1930s great depression affected most of the previously west European and North American capitalist economies and caused a staggering amount of unemployment, dramatic drop in production, bankruptcies, and falling prices. It also caused the banking system to collapse. The social and economical disruption was spread on a large scale. The notion of creating an economic utopia by means of capitalism had faded to a considerable extent. The theory suggested by neoclassical economists was that the state should do nothing and the self-correcting mechanism would solve the problem. On the other hand, Marxists had a different opinion who viewed that the depression was rooted and emerging from internal contradictions present in the capitalist system. The solution offered by them was to achieve social change by confronting those who held the most wealth and power in this capitalistic system. However, not many countries were keen to take up this solution. 

John Maynard Keynes published a theoretically important reaction to capitalism’s great crisis in his General Theory of Employment, Interest, and Money (1936). In his book along with criticising Neoclassical theories and assumptions he also offered new ways to formulate policies and conceive economics. There was a shift to macroeconomics. It was suggested that state intervention would be the choice to save the economy and American capitalism. New laws were passed to regulate the previously free markets. Despite large scale state intervention the level of full employment could not be reached and employment growth was extremely slow, it was through military mobilisation that solved the problem of full employment. The new Keynesian theory proved that state spending, tax increases, and deficits, and state regulations of production and markets were not only consistent with full employment or growth and were necessary to achieve them.

One of the changes that the Keynesian theory brought about was that it promoted the idea that individuals must hold the state responsible to maintain a capitalistic system in which economic inequalities were reduced and create a society where full employment is maintained. It was due to this theory that a modern welfare state was reached in the United States. It brought about a shift from humanism to structuralism. The exception in which Keynes moves back to humanism is the introduction of new assumptions about the human nature of investors. In the Keynesian view, though the investor may be able to calculate today the cost of undertaking a new investment, he cannot possibly calculate the future market conditions will be, therefore he will have to imagine what he expects in the future. 

The dominance of Keynesian theory was brought to an end in the 1970s which saw a shift back to Neoclassical theory. Conservative leaders and business persons blamed the state involvement and market regulations and claimed that capitalism was prevented from functioning properly because of it. The election of conservative leaders intensified favourable attitudes towards the capitalistic system under Neoclassical theory and strayed away from Keynesian theory. The collapse of the USSR further validated the neoclassical world view. This return to neoclassical theory had various social effects, which included lowered taxes on corporations and lowered regulations on business and markets. Though economic growth was taking place it also deepened economic inequalities. In the 1990s worry started spreading that the economy was becoming very dependent on debt and serious unequal wealth distribution was taking place in society. Not long after in 2008 economic crisis hit US capitalism again and spread globally. This resulted in Keynesian theory being brought back into prominence. Despite the crisis, deepening neoclassical economies argued that any state intervention would return to slow economic growth. This debate between the two sides deepened. Democrats in the US and Europe favoured Keynesian Theory, whereas conservatives in the US and UK promoted neoclassical theory. Since then this debate between the two theories has resulted in the continual shaping of society and theory.

Aishwarya Says:

I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.

If you are interested in participating in the same, do let me know.

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In the year 2021, we wrote about 1000 Inspirational Women In India, in the year 2022, we would be featuring 5000 Start Up Stories

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