The Great Depression: It's Causes and Resolve

Many people argue that the Great Depression was caused by a failure of our Free Market system. During the 1920’s the FED began to help England go back to the Gold Standard. The plan was for the US to print bonds for the UK to buy and to drive the prices us on the bonds so the return is less and the US makes more. The problem was that the UK didn’t buy any bonds. They returned to the Gold Standard and the US interest rates are lowered, making it a mal-investment. This open market trade operation led in part to the stock market bubble. In 1930 the American government created the Smoot-Hawley Tariff to protect American companies by charging a high tax on imports and thus almost eliminating trade between the US and Europe. During the time before the Great Depression people were living well and the economy seemed permanently stable, there was an economic boom. There was much economic progress, such as secure private property, international trade and immigration, technological change and development, and labor productivity. People had jobs, money, comfort, all was well. The government was printing excessive amounts of money and there began to be an inflation. People were investing in many things, and relied on banks for loans and securing their money. The real estate boom peaked, then the FED increased interest rates to slow down the stock market, and then industrial production decreased significantly within a few short years. This was a sign of the coming Stock Market crash, which occurred in 1929 and is known as Black Tuesday. The Stock Market bubble was the cause of this. People who invested their money in stock lost their money, many lost their jobs as a result of their boss or company’s money loss. The banks that they invested their money in were cleared out or bankrupt so people’s life savings were diminished. Many banks went out of business, which was more loss of jobs. The few banks left did not want to loan money and made it very difficult to do so for fear of going out of business. This made it hard to attempt to come out of the depression because people couldn’t get loans to start companies and create jobs and generate revenue. It was a downward cycle. Many argue that the cause of the Great Depression was the failure of the Free Market system, when in fact it was caused by the bubble created by too much economic boom and inflation and people investing in doomed stocks and companies. The economy and the stock market fluctuate, that is normal, but many factors built up and led to this fall and depression. I believe that the government policies did help in the short term with the Great Depression, but in the long term the economy would have fixed itself as it always does. It goes through fluctuations and periods and is designed to fix itself eventually. The economy is not perfect and constant and is expected to change and fluctuate to keep it going and people investing and participating. The New Deal policy created heavy regulations on all business in the attempt to stop competition, drive up prices, and drive up wages. This heavy government influence limited the jobs that were still intact and taxes took away from peoples wages to give to those out of work. They thought this, and immense government spending (which would be taken from the people through taxes) would encourage people to spend money and create jobs when in fact people were too fearful of loss to take that chance. People held onto their money. Excessive government control on business did not just spread the wealth to create jobs and encourage spending as they thought, but rather limited the businesses that were still in place.  The New Deal did create some short term jobs but did not permanently fix the situation. The Government’s eventual cut in spending, and therefore taxing, helped to come out of the Depression.  In the case of the Great Depression it may have been to severe to leave it alone and it fix itself, but it the government had waited to take complete control it may have fixed itself. Or, if the government had not taxed and limited but just created jobs and stimulated the economy. I believe that some of the policies did help the situation but that it made the Depression longer and that the economy, if left, would have eventually fixed itself.

Charter City Essay

If I were to create my own city in some uninhabited part of the globe where people could come in search of opportunity the key institutions I would use would be property rights for the individual, rule of law, markets and free trade, and free press. 

First, individual property rights are essential to economic growth. We have been divinely instructed of this. In D&C 134:2 it reads “We believe that no government can exist in peace, except such laws are framed and held inviolate as will secure each individual the free exercise of conscience, the right and control of property, and the protection of life”. These are the natural rights of man, which have been given of God of which we are born and cannot be taken away. They are essential for a government to exist in peace and a society to take place. Individual property rights will also encourage development and societal growth. This city cannot flourish without inhabitants, and the more the better. This is due to the fact that they bring their business with them. Their work, either in corporate businesses or their own small business, will stimulate economy through competition and selling their product. It will also stimulate technological growth and advances, increasing city growth and could lead to more trade between cities and countries. Labor productivity will surely improve, as well as human capital (knowledge and skills). They will also develop their properties as well, which will make them more valuable and stimulate the economy with buying and selling increased value property. 

Next, the rule of law. This is the idea that people and the government must abide by and obey the laws of the land. This is essential in holding a society together. It prevents the government from controlling the people and vice versa. All are equal under the law, therefore no one is above it. It helps guarantee the economic growth in that no one body controls the economy. The government is not able to force the people to do certain jobs for a certain amount of money. Thus we are able to have entrepreneurs. Entrepreneurs are essential to economic growth because they promote competition. They pursue profits and compete with the big business so that they aren’t able to monopolize the market. Therefore supply and demand aren’t stagnant, but rather may go up.

Also, there are markets and free trade. Free market is based on the right to property. Free market and trade promote competition, and we as humans strive to be the best and compete with each other. If there was no incentive, for example if we all received the same amount of money for our work, there would be no growth. No one would feel the need to work harder or create new technologies or make more money (because it would be impossible). On a spiritual level, we have been commanded to improve and use our talents and with this lack of incentive we would be wasting them. There wouldn’t be different companies for the same product with different costs, demand for the product could decrease. We are always looking for the next best thing, the newest technologies, and if there wasn’t any growth in it we would all eventually have the product and demand would decrease or disappear. 

Free press is the final institution I would use. Free press promotes economic growth in a few ways. One would be that it would get the word out about the city and promote city growth through people migrating there. This leads into the other ideas previously mentioned like entrepreneurship. Also, these small businesses can get the word out about their business and create some buzz around their product. They can increase their clientele. Others can speak of businesses they most trust or got the best value from. The city, as a whole, could also use this free press to contact and promote trade between other cities or countries promoting economic growth throughout the world. If the government controlled the press they could limit entrepreneur and small business exposure, which without exposure these would fail and the big business or government business could create a monopoly which would not stimulate economic growth.

The key institutions necessary for economic growth are property rights for the individual, rule of law, markets and free trade, and free press. Using these institutions I would create a city that flourishes in economic growth.