What Prolonged the Great Depression - Essay Example

During this time, the concept of the 'free market' prevailed. This idea suggested that the market would effectively balance itself the business could run smoothly without any government intervention. With this belief, the government of President Hoover did not take any action believing the market would attain balance soon by itself, and prosperity would return. It was assumed that once the public regained confidence, the business would begin and economy restored; but the business would not resume as there was a surplus in the market that was unsold.

Later, the government attempted to minimize state spending and increase taxes which in turn reduced the liquid money from the market and worsened the situation. Attempts were made later to make this loss good by providing loans to banks in order to pump in money in the market by offering relief work, providing loans to industries, and expanding public works. No assistance in terms of federal help was not provided and the government promoted 'self-help' groups to promote self-reliance. The decline in world trade and imports reduced because of an increase in import tariffs.

As an effect, exports also reduced considerably further weakening the state economy. With the onset of President Franklin Roosevelt's government, the state began to intervene in new domains of social and economic concerns and created social assistance measures on the national level, with a series of the program of reformation known as the 'new deal'. A wide variety of programs were introduced to reduce unemployment, boost trade and agriculture, stabilize the banks, and provide security to the weaker section of the society.

It was aimed to lower the supply of goods under the depressed market conditions where the demand was too low. Regulations were introduced to restrict agricultural and industrial output thus reducing competition and guaranteeing a weak but stable and progressing economy. The new deal temporarily helped in preventing the situation from worsening but in the absence of substantial liquid money in the market. Since the demand in the market did not regain a considerable level, the economy did not turn smooth and the level of unemployment still remained high.

As per the principle of economics, it is necessary to maintain a balanced level of demand and supply and simultaneously availability of liquid money in the market which could, in turn, create further demand this would subsequently create employment opportunities. The government never realized this role during the entire course of depression and in spite of the suggestions made by Keynes, the state did not resort to the high amount of spending that could regain confidence in the market and boost the trade and industry.

With the outbreak of World War II, the government was forced to spend heavily on the manufacturing of aircraft, ships, and the expansion of the defense system and create a distortion in the market, just as Keynes had suggested earlier. This induced industrial growth to support progress. With substantial money and demand for goods in the market, high demand for employment was generated to a level where there was a deficit in required labor, and the great depression ended.