• Recession is a normal part of the free market business cycle
  • Items and stocks purchased on credit during the 1920's left a high level of debt throughout the economy
  • The debt owed to banks and the fear which caused many to withdraw their savings, caused many banks to go bankrupt
  • People who had bank loans to finance investments went bankrupt
  • Affected the working class the most
    • Extremely low wages
    • High unemployment rates
  • The US introduced new tariffs in 1930 to promote the consumption of American goods
    • Resulted in the slowing down of international trade
  • This led to business failures and general skepticism toward the American economy causing those who had money to spend less, slowing the economy further
  • There was also a bad spell of drought, causing farms to collapse and fail, leaving little local food to buy
  • Led to the growth of government involvement (Keynes) [1]

Significance and Relation to the Ebb and Flow of Liberal Economics

This image illustrates the unemployment during that time
These events and social unrest, caused many people to question the efficiency of classical liberal economics. The Great Depression would lead to the growth of government involvement in the economy. The pendulum of economic ideals, was swinging from classical to modern liberal thinking.


[1] Fielding, J. (2009). Chapter 6: The Evolution of modern liberalism. In L. M. Linton & M. Schwalbe (Eds.), Perspectives on Ideology (pp. 199-200). Ontario, Canada: Oxford University Press