The Great Depression

 

The Great Depression was not caused by a failure of the free market. Also, the Great Depression was not resolved by government intervention. Government intervention only caused the Depression to linger longer than was necessary. The free market did not cause the Depression. The myth that free markets caused economic failure and government intervention was the cure is completely false. Unfortunately many people believe that the cure of the Depression was World War II and government intervention. These myths are false. If the free market went unhindered, the depression would not have been so devastating.     

          There are many reasons for the Great Depression. During the 20’s the nation was experiencing exponential growth in the economy and GDP. This enormous growth caused wide-spread speculation which helped cause the crash of stocks. Another great cause of the Depression was the emergence of the Federal Reserve (FED) which controls the flow of currency in the US. The FED created increased interest rates which slowed the market resulting in collapse. Banks fell at the beginning of the Great Depression because of heavy regulation on the state level. This heavy regulation and strict laws prevented financial securities in the banking systems. This created the bank crash which is a major part of the Great Depression. Speculation, government control such as the FED, and the natural ebb and flow of the market caused the initial crash of the Market.

          The United States stayed in a state of economic depression because of government intervention. If the president and congress had a laissez-faire role in the economy, the Depression would not have lasted nearly as long as it did. The government took many steps to try to fix the crashed economy. Governmental leaders had strong beliefs of John Maynard Keynes which says that government should help control and guide the economy. These beliefs are wrong and hurt the economy more than provide aid. We see examples of this by firstly, the Smoot Hawley Tariff which was meant to protect American businesses from foreign trading by raising tariffs on goods. This became a great hindrance to not only America, but the whole world. Secondly, Government tried to stimulate the economy by spending large amounts of money on useless programs. An example of this is the New Deal which was instituted by Franklin D. Roosevelt. The New Deal had many new programs and laws which were passed by congress and the President. Some important aspects of the New Deal are;  Works Progress Administration (WPA) which was a giant relief program which employed millions of unskilled workers to do public projects. This program wasted millions of governmental spending which could have been put to much better and necessary use. Also, the Wagner Act which limited employers and basically took away competition and much freedom necessary in the market. Thirdly, the National Industrial Recovery Act (NIRA) regulated industry and opened the door for monopolies in an attempt to aid the economy. The effect got rid of competition in industry. We also see the Agricultural Adjustment Act (AAA) which paid farmers to stop growing crops. It literally paid farmers to destroy their goods. To me, this seems like a large waste in order to jack up prices on food. The Fair Labor Standards Act set the minimum wage and set the maximum hours for workers. This caused many to lose their jobs and businesses to go out of business. Also many other programs of the New Deal greatly hindered the recovery of the economy. Government intervention was a very bad thing. The government should never have so much power over the economy and market.

       Economic down turns and market fluctuations are normal in a healthy economy. Before the Depression, there were crashes and downturns in the economy. However, these downturns ironed themselves out because the free market fixed itself. When the government stepped in, things only got worse and stayed worse. It is a false myth that the economy collapsed because of the free market and that government was the reason it was fixed.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     

Lesson 6 Charter City Essay

If I were to establish a charter city, I would establish a setting of free markets, personal liberty, and continuous opportunity. The most important aspect for economic prosperity to prevail, is establishing a set of rules based off of the United States Constitution and the Declaration of Independence. This key institution would protect life, liberty, and property. Without protection of life, liberty, and property from government, there would be no economic prosperity. Also, things like the Commerce Clause and the Bill of Rights help protect freedom in the markets and trading so prosperity may emerge. With rules based off the US Constitution we would have the Rule of Law which gives sovereignty to the people. Government would not have the power to control people or the economy. All of these aspects are extremely vital to achieve a prosperous economy.

            The Second most important institution that I would create would be to establish a free market economy based on capitalism. Capitalism can only prosper where people’s property rights and other liberties are protected by government. Therefore, in order to have a capitalistic society the very first step is to establish rules that protect such things. It is important to have a free market because a free market promotes competition which is fueled by people’s self interest. Competition promotes economic activity and prosperity for the whole. Hence, it is important to be “greedy.” In “Greed” the video from class we learned how free markets allow people to pursue self-interests which helps build wealth, provides more jobs, and creates a better standard of living. When people follow their self-interests and are unhindered by tyrannical government we see the invisible hand. This invisible hand as it has been called is only present in a capitalistic society. In I-Pencil, the invisible hand controls millions of people who all come to create a pencil. No one person really knows all the complexities of how to make a pencil. No one person or group of people can control the economy. The invisible hand is very important. In pursuing one’s own interests, you help others pursue their interests as well.

            The third and extremely important institution I would create is the adoption of modern technology. I would promote new technology because technology is vital for a prosperous economy. Technology provides more work and improves efficiency of workers which builds wealth and creates more surplus. This is shown by Daniel Boone who made nails like his father. Daniel could make 50 nails per day. The lack of technology back then created a low standard of living. Today, nail factories can create millions of nails in a day which lowers the price of nails and creates a better standard of living. Also important is entrepreneurs. In Brother Johnson’s essay it clearly shows the importance of entrepreneurs. “In countries with entrepreneurs we see implementation of technology and wealth creation, whereas, in countries without entrepreneurs we see stagnation.” Technology and entrepreneurship create opportunity and wealth. In order to have a successful economy there needs to be moral based rules which protect individual life, liberty, and property. There needs to be capitalism which is propelled by self-interest and the invisible hand which use technology and entrepreneurship to create wealth. There needs to be freedom of trade and partnerships. People need to be protected from government and the market needs to be protected from governmental intervention. Only with these key aspects can there be true economic growth. I know that a city following these institutions would become very prosperous.