How did laissez-faire economics contribute to the Great Depression?

Essay on the great depression of 1929 pdf

Initially it arose in France as a rejection to the set of mercantilist ideas, since the workers were organized in guilds, therefore, this implied that people could not study or exercise the trade or profession that interested them in a free way; without the previous authorization of the guild.

So, all this happened in France during the absolutist monarchy of Louis XIV, while Jean Baptiste Colbert was Minister of Finance, who was a great promoter and defender of the mercantilist ideas prevailing in France.

The less competition there is in the markets, the less beneficial the results are for both consumption and production; for what it does is to de-economize scarce resources and that goes against any economic objective.

However, since its origin the phrase Laissez faire has sought to eliminate and abolish any type of law by the state that prevents the most skilled and efficient people from making the best use of their resources and that prevents free competition in the markets.

Explain the causes of the Great Depression

The causes of the Great Depression in the early 20th century are a topic of active debate among economists, and are part of a larger debate about the economic crisis, even though the popular belief is that the Great Depression was caused by the Crash of ’29. The specific economic events that took place during the Great Depression have been studied in depth: an active deflation and commodity prices, dramatic drops in demand and credit, and disruption of trade, ultimately resulting in the growth of unemployment and thus poverty. However, historians lack consensus in determining the causal relationship between various events and government economic policy as the cause of the Depression.

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There are also several heterodox theories that reject the Keynesian and monetarist explanations. Some followers of new classical economics have argued that various labor market policies imposed at the beginning caused the length and severity of the Great Depression. The Austrian School of economics focuses on the macroeconomic effects of the money supply and how central banking decisions can lead to malinvestment. The Marxist economics view perceives the Great Depression, along with all other economic crises, as a symptom of the inherent classism and instability of the capitalist model.

Consequences of the 1929 crisis in Europe

The globalization that had been progressing since the end of the 19th century came to a halt: migratory flows, commercial exchanges and the international movement of capital fell. However, deflation was not followed by the upturn predicted by orthodox economists. The decline in GDP between 1928 and 1935 was 25 to 30 percent in the United States, Canada, Germany and several Latin American countries and 15 to 25 percent in France, Austria and much of Central and Eastern Europe. Unemployment affected more than a quarter of workers almost everywhere.

The Great Depression 1929

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How did laissez-faire economics contribute to the Great Depression?
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