The Crash of 1929 and the American Economic Theory

The economic collapse of the 1930s, inducing major chnages in the role of government in American life, and preceding a war that dramatically altered the nation's role in world affairs, has been examined in a wide variety of ways. More significant for this depression was the collapse in the world of production and trade, and above all the record-breaking unemployment. Unemployment of registered labor affected 15-30% of the population at risk in many countries, while many more workers had removed themselves from the register, having lost all hope of finding work, and others worked short-time only. Even after the onset of the recovery in 1933-34,a large hard core of intractable unemployment remained almost everywhere. Similarly unprecedented was the decline in output and in real national income over several years. The share collapse at the beginning was soon followed by other financial disasters. As the crisis deepened, American banks and finance houses went under in large numbers. Profits and interest rates fe.. The British bank rate at 2% unshered in an unprecedented period of 'cheap money'. The depression of the 1930s has possibly an even stronger claim to be considered a unique event, with its own particular explanation for which no parallels canbe found in other periods. Marxists saw it as heralding the frequently predicted final end of capitalism, while other ascribed its severity to the direct and indirect consequences of the war. At the other extreme, the trade cycle boom of 1937 was extremely weak and carried many signs of turning into a further severe depression, which was avoided only by the preparations for war. In more normal circumstances, the whole of the three Juglars, 1920 -39 or even 1920-45,might have been taken as the depression, in parellel with the dating of 1873-96. Most of the studies concerning the great Depression in the United States May be Broadly classified in to three catagories. One group of short-run United States may be broadly classified into three catagories. One group of short-run theories argued that the severity and length of the downturn were direct result of the collapse of financial markets that began in 1929. The main emphasis of such work concerned the casuses of the 1929 crash and those factors that amplified its impact. Another concluded that the economic misery of the thirties was the direct result of poorly formulated and politically distorted actions undertaken by the government. A third king of research took a broader perspective and attempted to analyze the depression in a long-run context. It suggested that whatever the origins of the slump, the reasons for its unparelleled length and severity predeted and transcended the events of the last quarter of 1929. I want to examine in this paper that the difficulty experienced bo the American economy in the 1930s was nd outgrowth of secular trends in development. By the 1920s, the economy ha entered an era characterized by the emergence of dramatically new demand patterns and investment opportunities. These patterns and opportunities foreshadowed and indeed encouraged a shift in the composition of national output. But such a qualitative transformation created impediments to the recovery process in the thirties. These impediments derived from the difficulty of altering technology and labor skills to meet demants for new investent and consumer goods at a time of severe financial instability. In this sense, long-tern growth mechanisms played a major role in the cyclical problems of the interwar period.departmental bulletin pape