...government power. And that man is Keynes. As shown in history the theory of the role that government should play in the marketplace from Hayek has been long overlooked. Beginning in the Great Depression era, policy makers in Washington latched on to Keynes’ new theories of stimulating the economy through high levels of government spending. Keynes believed that the government should increase public works projects and stimulus spending which would increase the nation’s aggregate demand, meaning an increase of the total demand for final goods and services. The Great Depression continued on as project after project and program after program failed to yield the results that Keynesians had hoped for. Even when faced with the data that proved the Keynesian theory incorrect, the policy makers argued that spending was just not high enough. On the other side of the argument was Friedrich Hayek, who argued that government planning the economy would never work. As Hayek argued in his book The Fatal Conceit, “the curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” Central planners can try day and night to make the economy work perfectly, but they never have the perfect information that would yield the results they hope for. Hayek knew that increasing government spending only directed resources away from their most useful outlet. Only markets, free of...
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...America in the 1920’s The Boom Period During the 1920s there was a prolonged boom in the American economy. Industrial production doubled, the economy grew rapidly and fortunes were made. Life had never seemed better for the majority of the American people. The boom developed for a number of reasons. World War I The European economies were exhausted by the cost of waging a long war. In comparison, the USA grew rich during the war years. Its late arrival to the war, and the fact that its cities and industries were not bombed or destroyed during the conflict, meant that at the end of the war it was able to capitalise on the perilous state of European industry and dominate their markets. New technologies The first 20 years of the twentieth century saw huge technological advances in industry. Factories became automated. Machines and other improved manufacturing techniques meant that huge amounts of goods could be made at a fraction of the cost. The age of mass production had arrived. In the decade of the 1920s economic output increased by a staggering 50%. Consumer boom Because goods could be produced in greater numbers and at much lower prices, more people were able to afford them. This led to huge increases in the sales of products such as cars, refrigerators, radios and cookers. Buying on credit This consumer boom was greatly aided by the availability of hire purchase - the ability to buy goods on credit. Because times were good, people were not worried about...
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...The Great Recession and the Great Depression John Maynard Keynes wrote in the depths of the Great Depression that, “Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”1 This acute observation is applicable to our current Great Recession as well. In fact, the newly discredited ideas are not too different from the old, suggesting that Keynes may have overestimated the ability of people to learn from their mistakes. I discuss the parallels between these two watersheds in recent economic history in three steps. The first and most important step is the causes of the crises and their relation to economic theory. The second step is the spread of the crises as they affected the whole world. I close with the final step, recovery—at least as far as we can see it at this point. Marx said famously that history repeats itself, “the first time as tragedy, the second as farce.”2 I argue that this observation also fits our current condition. Both of these dramatic and costly economic crises came from the interaction of economic imbalances in the world economy and the ruling ideology of financial decision makers who confronted these imbalances. The first imbalance came from the First World War. This paroxysm of violence brought the long economic expansion of the nineteenth century to a sudden end. Britain, the workshop of the prewar world, was exhausted by the struggle. America, the rising...
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.... The Great Depression was a period of unprecedented decline in economic activity. It is generally agreed to have occurred between 1929 and 1939. Although parts of the economy had begun to recover by 1936, high unemployment persisted until the Second World War. Background To Great Depression: * The 1920s witnessed an economic boom in the US (typified by Ford Motor cars, which made a car within the grasp of ordinary workers for the first time). Industrial output expanded very rapidly. * Sales were often promoted through buying on credit. However, by early 1929, the steam had gone out of the economy and output was beginning to fall. * The stock market had boomed to record levels. Price to earning ratios were above historical averages. * The US Agricultural sector had been in recession for many more years * The UK economy had been experiencing deflation and high unemployment for much of the 1920s. This was mainly due to the cost of the first world war and attempting to rejoin the Gold standard at a pre world war 1 rate. This meant Sterling was overvalued causing lower exports and slower growth. The US tried to help the UK stay in the gold standard. That meant inflating the US economy, which contributed to the credit boom of the 1920s. Causes of Great Depression Stock Market Crash of October 1929 During September and October a few firms posted disappointing results causing share prices to fall. On October 28th (Black Monday), the decline in prices turned...
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...the gold standard "caused" the crash and depression of 1929-39 and beyond. But, as Bernanke and Liaquat admit, the central bankers of the post-war period in somes cases (France and the US quite openly and purposefully) "sterilized" their gold so that the money supply did not expand when needed but in fact contracted. So it was a failure to follow the gold standard rather than gold itself which was the culprit. Nor do either Bernanke nor Ahamed explain why the gold standard worked quite well for a century before WW1, although Bernanke admits that is an "unexplained" issue. While acknowledging the long history of the gold standard and its importance in the development of central banking, Ben Bernanke made crystal clear that we're never going back to the gold standard. He explained that the argument supporting the gold standard has two parts: 1) the "desire to maintain the value of the dollar"—implying a "desire to have very low price stability, and 2) an aversion to allowing "the central bank to respond with monetary policy to booms and busts," explaining that "the advocates of the gold standard don't want to give the central bank that power." But regardless of the impetus for these arguments, he explains, a return to the gold standard now "would not be practical for monetary reasons or policy reasons": Bernanke pointed out various reasons that there's simply "not enough gold" to sustain today's global economy. First, extracting gold from the ground is a costly and uncertain endeavor...
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...THE GREAT DEPRESSION AND THE STOCK MARKET CRASH An Introduction The stock market crash The stock market was created on 1792 to allow stocks and bonds to be traded “bought and sold”. A “stock market crash” is the steep fall of the prices of stocks due to widespread financial panic. America experienced an era of great peace and prosperity during the 1920s. After World War I, the so-called “Roaring Twenties” economic and cultural boom was fueled by industrialization and the popularization of new technologies such as radio and the automobile. Air flight was becoming common as well. The Dow stock average soared throughout the Roaring Twenties and many investors aggressively purchased shares, comforted by the fact that stocks were thought to be extremely safe by most economists due to the country’s powerful economic boom. Investors soon purchased stocks on margin, which is the borrowing of stock for the purpose of gaining financial leverage. For every dollar invested, a margin user would borrow nine dollars worth of stock. The use of leverage meant that if a stock went up 1%, the investor would make 10%. Unfortunately, leverage also works the other way around and amplifies even minor losses. In 1929, the Federal Reserve raised interest rates several times in an attempt to cool the overheated economy and stock market. On Thursday, October 24th 1929, a spate of panic selling occurred as investors began to realize that the stock boom was actually...
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...THE CAUSES AND EFFECTS OF THE WALL STREET CRASH AND THE GREAT DEPRESSION The economic boom of the 1920’s came to a sudden end in October 29, 1929. In June 1929 prices of stocks and shares had reached new highs. The Stock Market seemed to be a quick and easy way to get rich. The Stock Market is the place where stocks are traded. More and more people wanted to ‘play the market’ (Buy and sell stocks). [pic] The Wall Street stock market (located in New York City) was not regulated .Anybody could buy shares and they could be bought ‘on the margin’-This is when the stock broker and the stock holder merge their money to buy stocks, for example, people could buy $1000 worth of stocks for only $100 and borrowed the rest from stockbroker. Buying on the margin became a common practice. People waited for the share prices to go up again and then resold their shares for a profit. It was usually easy to pay back the loan and still make money. The day of the crash: By the summer of 1929 there were 20 million shareholders in America and prices continued to rise. But in October 1929, things began to change. Some people realized that share prices had risen too high and wanted to sell before they fell. THE CAUSES OF THE WALL STREET CRASH 1. OVERPRODUCUCTION- New mass-production methods and mechanization Meant that production of consumer goods had expanded enormously. In fact, there was overproduction (more being made than could be consumed).The market was becoming...
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...Topic: The Great Depression, continued Read: In Fed we Trust, chapters 1-4 1. Define the term gold standard. Should we return to it? The gold specie standard arose from the widespread acceptance of gold as currency. No, The gold standard limited central banks from printing money when economies needed central banks to print money, and limited governments from running deficits when economies needed governments to run deficits. It was a devilish device for turning recessions into depressions. The answer is that some people aren't worried about depressions. Some people are worried about inflation. 2. Who was J. Pierpont Morgan? What was his role in stopping the Panic of 1907? John Pierpont "J. P." Morgan (April 17, 1837 – March 31, 1913) was an American financier, banker, philanthropist and art collector who dominated corporate finance and industrial consolidation during his time. In 1892 Morgan arranged the merger of Edison General Electric and Thomson-Houston Electric Company to form General Electric. After financing the creation of the Federal Steel Company, he merged in 1901 with the Carnegie Steel Company and several other steel and iron businesses, including Consolidated Steel and Wire Company owned by William Edenborn, to form the United States Steel Corporation. - The Panic of 1907 was a financial crisis that almost crippled the American economy. Major New York banks were on the verge of bankruptcy and there was no mechanism...
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...To what extent where the government policies responsible for Britain’s economic recovery in the 1930’s? It could be argued that the housing boom is responsible for Britain’s economic recovery in the 1930’s as a high proportion of all investment went into housing. They gained an extra 750,000 workers between 1932 and 1934 making it easy to efficiently build houses which lowered the cost of production. However, this factor was only made possible by other aspects such as population movement and low mortgage and interest rates. It is also necessary to include that the housing boom was only made possible by their allied industries such as plumbing, cement and electricity as without these products being readily available the houses could not have been built. As the housing industry boomed it made other industries more successful in trade as the consumption of electricity doubled in the 1930’s and by 1938 there were 9 million wireless sets in private homes and the demand for luxuries such as radios and cars also grew. This benefited the other industries and the working class as more jobs were readily available for them to earn a living and provide for their families. It is clear to see that the housing boom could be seen as being responsible for Britain’s economic recovery in the 1930’s as it gave jobs to the working class which increased consumerism as more and more people had money to buy consumer goods which helped the cycle of prosperity to continue on and helped the economy recover...
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...Peru Boom Spurs Growth of Middle Class (Assignment 1) Michael Davis SOC 300 January 3, 2012 Professor Ruben E. Saroukhanian Peru Boom Spurs Growth of Middle Class Peru is a middle country in Latin America; it was not one of the superrich or really poor countries. Now Peru is one the fastest growing Latin countries; in the city of El Salvador which uses to be known for indigenous Peruvians is now a mega city. This city has all the bells and whistle, the main attraction is the Mega Plaza Express shopping center. The Mega Plaza Express shopping center has movies, dinner, lights, electronic stores and much more; the local’s lover the current scene and life the city has now. Over the last couple of years the price of gold and copper has raise and the demand has become very popular with Asian countries. “The Andean country’s gross domestic product rose 6.7 percent year on year in October 2012, marking 38 consecutive months of growth” (Schipani, 2013). Peru growth has notice a letdown in 2010 to 8.8 but that has not stop Peru from becoming one of the top growing Latin American countries. “Sales in 2012 topped $5.3 billion, an increase of 20 percent over the previous year. The increase was due not only to the existence of centers such as Mega Plaza Express” (Schipani, 2013). The Peruvians average $2 dollars a person in his or her pocket has reduced to 28 percent over the last ten years. One of the goals of the Peru President is to reduce/cut poverty to least then 15 percent...
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...(NAWSA), founded in 1890, and the National Women’s Party (NWP), founded in 1913 and led by Alice Paul (Schultz,2012,pg.341-42). The second major historical turning point in this era I will discuss is the Stock Market Crash of October 1929. The Stock Market Crash of 1929 devastated the economy and was a key factor in beginning the Great Depression. Analyze the impact of the two (2) or more major historical turning points selected on America’s current society, economy, politics, and culture. The Women’s Suffrage movement had a major impact on society, economy, politics, and culture. In 1920 the Nineteenth Amendment was passed and women won the right to vote (Schultz, 2012, pg.342). The enfranchisement of women was the largest expansion of the voting population in American history, significantly increasing the American electorate. This movement opened many doors for women; they now knew that they had a voice and the right to speak on political issues within the government and allowed them property rights. The stock market crash of 1929 caused fear and panic throughout the country and resulted in the beginning of the Great Depression. All aspects of the economy were affected by this downward spiral in the stock market; it caused many banks and businesses to fail and have to fail for bankruptcy. Unemployment increased, which created a decrease in purchasing power for consumers and that led to businesses having to lower prices on merchandise. Many laborers were forced...
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...Week 6 Knowledge Check Study Guide Concepts Mastery Score: 9 / 9 100% 100% Questions 1. Diversity in organizations makes good business sense because A. diversity is the new trend B. diverse organizations are popular C. diverse organizations have less legal problems D. a diverse organization can be helpful when expanding into global markets Correct: The Correct Answer is: D. Organizations must be positioned to their global markets. Having employees that are multicultural can assist in working with a diverse network of suppliers, customers, and strategic partners. 2. The demographics of the United States are changing so dramatically that over the coming decades it will be impossible for employers to fill their ranks with members of the traditional workforce, __________. A. white females B. males under forty C. baby boomers D. white males Correct: The Correct Answer is: D. By 2040, an estimated 70% of American workers will be either women or members of other races or nationalities. 3. To manage diversity, you should replace inflexibility and intolerance with A. care and concern B. fear and distance C. adaptability and acceptance D. discipline and segregation Correct: The Correct Answer is: C. Diversity can help organizations expand into global markets; build brand equity; increase consumer purchasing and grow the business; support the organization’s ...
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...A baby boomer is a person who was born during the demographic Post-World War II baby boom between the years 1946 and 1964, according to the U.S. Census Bureau. The term baby boomer is also used in a cultural context. Different groups, organization and individuals may have widely varying opinions on what constitutes a baby boomer. Baby boomers are associated with a rejection or redefinition of traditional values. In Europe and North America boomers are widely associated with privilege, as many grew up in a time of widespread government subsidies in post-war housing and education, and increasing affluence. One feature of boomers was that they tended to think of themselves as a special generation, very different from those that had come before. The phrase baby boom has been used since the late twentieth century to refer to a noticeable temporary increase in the birth rate. According to the Oxford English Dictionary, the first recorded use of “baby boomer” is from 1970 in an article in the Washington Post. Howe, well known for their generational theory , define the social generation of Boomers as the cohorts born from 1943 to 1960, who were too young to have any personal memory of World War II, but old enough to remember the postwar American High. The generation can be segmented into two broadly defined cohorts: The leading-edge baby boomers are individuals born between 1946 and 1955. This group represents slightly more than half of the generation, or roughly 38,002,000 people of...
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...American history from 1877: How the Great Depression compare to The Current Economic Recession affecting the US American history from 1877: How the Great Depression compare to The Current Economic Recession affecting the US. Introduction In 1929s, a global depression hit countries with market economies. Despite the fact that the Great Depression was moderately gentle in some nations, it had very severe effects on others, especially the America. In the United States, the great depression went down in history as one of the worst economic crisis, which left a deep-seated situation, leading to joblessness, starvation and homelessness for over a decade in the US. The Great Depression in America also led a great global depression, as typically each industrialized economy including Germany, Italy, Japan, Britain, France, and others, was completely destructed. Various economists and the media have often linked the current economic crisis that heightened in 2008 to the great depression which occurred decades ago. Looking at the implications of the great depression and what is happening today, clearly there are several direct similarities between the two economic crises. Through a brief analysis of the two economic scenarios, this paper hence aims to show how they are related. What are the similarities with the current financial crisis? Some of the similarities between today’s economic situation and the Great Depression of 1920s include: High rates of unemployment- Economic forces...
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...Although there are some points of similarity, the 2007-08 financial crisis is not tied to the same narrative as the 1929 Great Depression that Karl Polanyi analysed (1933). However, the most recent financial bust reveals the same incessant pull between proponents of laissez faire and the movement of protection of society as the Great Depression did. Indeed, “the dire consequences of the 2007-08 crisis are a testament to the power of Polanyi’s insights on the perils of the market” (Gemici, 2014, p. 2), in that one finds an adequate explanation to the crisis in Polanyi’s framework of analysis. Through such a theoretical understanding, this paper will show that the boom and bust or bubble and burst cycles of our market economies are not the result...
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