CH 24, Sect. 1 PP Notes • John Maynard Keynes: From Britain, published General Theory of Employment, Interest, and Money in 1936. • Disagreed with the idea that depressions should just be left alone with no gov’t interference. • Stated that unemployment came from a decline in demand. (people buying things)
“A depression is characterized by its length; by abnormally large increases in unemployment; falls in the availability of credit, often due to some kind of banking or financial crisis; shrinking output as buyers dry up and suppliers cut back on production and investment; large number of bankruptcies including sovereign debt defaults; significantly reduced amounts of trade and commerce, especially international; as well as highly volatile relative currency value fluctuations, most often due to devaluations. Price deflation, financial crises and bank failures are also common elements of a depression that are not normally a part of a recession.” From Wikipedia
John Maynard Keynes cont. • Demand could be increased by the gov’t putting people back to work. • Put people back to work with gov’t projects like construction of roads, buildings, bridges, etc. • Govt’s should engage in deficit spending to finance such projects.
The United States and the Great Depression: • 1932 – U.S. industrial production had fallen almost 50%. • 1933 – 12 million unemployed.
Franklin Delano Roosevelt: • Won the 1932 presidential election, a Democrat. • Because of the Great Depression he started a program called the New Deal. • New Deal – Federal gov’t actively intervened in the economy. (Followed Keynes’ ideas)
The New Deal: • Works Progress Administration (WPA), 1935 • Employed 3 million people in gov’t jobs and projects. • Social Security Act, 1935 – old age pensions and unemployment insurance. • Did not stop unemployment, 1938 -- 10 million people out of work.
New Deal Cont. • Did the New Deal work? • Some historians said it prevented a social or Communist revolution in the USA due to the Great Depression. • Other historians said it failed and only WWII brought the USA out of the Great Depression.