How Did The Depression Affect The Great Depression

1116 Words5 Pages
1929 economic crisis, which is generally called as Great Depression, had upset the balance of world economic order. Until the depression, classical liberal economic theories were dominating World order. Classical economics is a supply oriented theory, claiming that whatever the level of supply, it is going to create its own demand in the market. If the free market determines the levels of prices, economy will always be in the situation of full employment. Accordingly, states should never interfere in the market. Prices are flexible, which provides the full employment balance. Increasing wages will lead demand for labor to fall, the falling demands will cause wages to decrease again and it will cause increasing demand for labor and employment automatically. Selfish behaviors of the actors in the market will provide benefit to all people in the market.
Classical theory had firstly faced with a crisis that stated in 1870’s then it managed to survive by transforming to neoclassical theory. In this way, it maintained its domination on the global economic conjuncture until 1929 Great Depression. The crisis refuted a lot of thesis of Classical Liberalism. Non-interference of states was creating so much inequality. Banks were structured weakly, their capital and credit principles were unclear. In USA where the depression broke out, banks could not recover the credits they had lent. As a result of these conditions a lot of banks went bankrupt, so
Open Document