The Great Depression - Essay Example

The Great DepressionIntroductionTwo promising economists of the great depression era were John Maynard Keynes and Fredrick August Hayek. However, the views of these two economists sharply contrasted each other. In the wake of great depression these two economists argued with each other regarding the probable course of action to be taken. The following essay presents the differences in between the ideas of these two prominent economists. DiscussionThe revolutionary proposition by Keynes was that after a big shock like the collapse of investment there were no forces in the market for automatic recovery (NANCY).

According to Keynes in this situation the economy would go on sinking until some sort of stability at lower level was reached. This lower level was referred by Keynes as underemployment equilibrium. The reason that was cited by Keynes for such a behavior of the economy was that the level of employment and output in an economy or in other words the level of activity in an economy was dependent upon the level of spending power or aggregate demand in the economy. Thus a shrink in the spending power would lead to a shrink in the output.

In such a situation the job of the government was to increase its own spending so as to offset the decline the spending by the public. According to Keynes the wrong policy in a slump was to cut the spending of the government (BBC). As opposed to the belief of Keynes, Hayek had the belief that in order to recover from a boom crash the solution was not just adequate spending but also a return to the sustainable production at the same time. The production that had been purged by distortions in the boom era due to the availability of easy money needed to return to level of sustainable levels so as to recover financially.

The theory of Hayek was dismissed as many held the belief that he tried to liquidate labor, stocks and the farmers. However, it seems that the Hayek was right due to the fact that after there has been unsustainable boom period it is really required to liquidate the thinks so that the distortions can be removed. For instance after the financial crisis of 2008 the recipe for straight forward revival would be to liquidate all the assets which led to the subprime bubble due to the easy monetary policy.

In short Keynes gave a recovery that seems painless for the economy by giving the economy extra money. However, the believers of Hayek’s theory understand that there is no painless recovery option that is available for recovering from an unsustainable boom. The only way an economy can recover from such a period is to try and avoid the boom itself. ConclusionIn light of the great depression the two economists Keynes and Hayek held different views and options that could be used by the economy to recover from the recession.

The views of the two economists differ substantially and offer different explanations to the cause of the economic crisis. Works citedBBC. Keynes v Hayek: Two economic giants go head to head. 3 Aug. 2011. Web. 04 Dec. 2015. < http://www.bbc.com/news/business-14366054 > Cowie, Jefferson. "Capital moves: RCA’s 70-year quest for cheap labor." (1999). NY: Cornell University Press. Print. Kirshner, Jonathan. The Global Financial Crisis: a turning point. 08 Nov. 2014. Web. 04 Dec. 2015. < http://www.forbes.com/sites/jonathankirshner/2014/11/08/the-global-financial-crisis-a-turning-point/ >.

NANCY KOEHN. The tale of the dueling economists. 22 Oct. 2011. Web. 04 Dec. 2015. < http://www.nytimes.com/2011/10/23/business/keynes-hayek-views-origins-of-an-economics-debate-review.html?_r=0 >.Romero, Federico. "Capital Moves: RCA's Seventy-Year Quest for Cheap Labor. By Jefferson Cowie.(Ithaca: Cornell University Press, 1999. xii, 273 pp. $29.95, ISBN 0-8014-3525-0.)." The Journal of American History 87.1 (2000): 316-317. PrintThe economist. The origins of the financial crisis. 7 Sept. 2013. Web. 04 Dec. 2015. < http://www.economist.com/news/schoolsbrief/21584534-effects-financial-crisis-are-still-being-felt-five-years-article >.