Anarchy? Economic system needs supervision---《1929: The Great Crash》(Blog 7) 05.12.2019

Anarchy? Economic system needs supervision---《1929: The Great Crash》(Blog 7)

Two weeks have passed since the last author's multimedia blog. In this blog, the video discussed by the author is about the 80 years before the bankruptcy of Lehman Brothers. The largest, longest and most influential economic crisis ever encountered by human society is called the great crash.

The causes of The Great Crash

According to the author queries relevant data and combining with the video, in the first world war, the victors at the Paris peace conference and the Washington conference, established the system of Versailles - Washington, adjust the relationship between the imperialist countries temporarily, the capitalist world in the 1920 s in a relatively stable period, into the golden decade of rapid development. As described in video, people, including shoeshine children, are paying attention to the stock market, and with the rapid economic growth, luxury goods and other industries are popular (Editor, 2010).

Because of the popularity of the stock market, everyone started to research and in the stock market, in addition to the businessman, and children and women, through stock make money very easily and popular for a while, everyone wants to be speculation, everyone is speculation, people buying assets not because of their value, but because the buyers believe they can, in one or two hours in a day or two at a higher price to sell. At the same time, in the United States at the time, there were a large number of openly optimistic people with clear views (BBC, 2019). "The world economy appears to be heading for a major expansion," he said. "their unanimous judgment suggests that stock prices are not overvalued." The doubters were a minority, and the journalists were constantly paid by the farmers. According to the harvard institute of economics at the time, In November 1929, this recession, neither the stock market nor the economy, was a harbinger of economic collapse. In December, we expect the economy to recover next spring and improve further in the fall. In January 1930, there were signs that the worst of the recession was over; In march, judging by past contractions, manufacturing must now be recovering. In march, the outlook remains favourable; In April, the spring recovery should be clear by may and June; In may, this month or next, the economy will improve further and return strongly to much better than normal levels by the third quarter or the end of the year. In June, the economy, despite some hiccups in the recovery process, will soon improve. In July, unexpected factors delayed recovery, but there are signs of a sustained upturn right away. In August, the recession was almost over; In November, we are now nearing the end of the recession.

This is the most surprising thing. Before black Thursday (October 24, 1929), the whole market was singing in unison, from politicians to economists, from big brokers to small investors. Whenever the market is in turmoil, someone will say that "the economy is functioning normally and healthily." on Friday, for example, President hoover quickly said that "America's basic businesses, the production and distribution of goods, are based on health and prosperity." But the disaster finally happened. Share price one drop 1000 cases, even general and other companies are no exception, no matter banker or retail investors are in the hands of the stock, the market collapse across the board, the day changed hands to create a history of up to 12894650 shares. By the close of the day, 11 financiers had committed suicide. In the next week, americans lost nearly $10 billion of their savings, the stock market fell 90 percent, and the economy plunged into a six-year depression (History Editor, 2010).

According to the analysis of later experts, the cause of the disaster was the contradiction between production (supply) and sales (demand):

(1) the gap between the rich and the poor is too large: capitalists blindly expand production, the people are relatively poor, the purchasing power is lower than the production capacity.

(2) excessive expansion of credit consumption, resulting in false prosperity of the market, aggravating the contradiction between production and sales.

(3) excessive stock speculation, the stock can not reflect the actual situation of economic operation, resulting in a false prosperity of the economy, covered up the contradictions.

(4)The influence of laissez-faire economic thought, make whole social production is in anarchic condition.

Solution -- Roosevelt's New Deal

Because of the failed strategy of hoover administration, it adopted laissez-faire policy and opposed state intervention in the economy. Therefore, after franklin Roosevelt came to power in 1933, he issued a series of policies in response to The Great Crash. Among them, The first one was to rectify The banking and financial system, order The Banks to suspend their operations, gradually restore The credit of Banks, abandon The gold standard and devalue The dollar to stimulate exports. To solve the shortage of bank money, the Roosevelt administration commissioned the federal reserve Banks to issue money according to the assets of the Banks and authorized the reconstruction finance corporation to provide liquidity to the Banks by purchasing preferred shares. To restore public trust in the Banks, it mandated that the Ministry of Finance clean up the Banks and oversee their reopening. The Treasury has been required to support large, solvent Banks and to phase out unsound, insolvent ones. To protect bank reserves and stem gold outflows, it banned the storage and export of gold (Berkin, 2012). Through the above measures, the Roosevelt administration maintained and strengthened the private ownership of financial capital in the United States, and also strengthened the management and control of the financial system by the state. Roosevelt's policies effectively helped the United States recover from the economic crisis, which also greatly illustrated the role of the government in the economic system and the importance of macroeconomic regulation and supervision.

Critical thinking and personal opinion

After for The Great Crash analysis, The author thinks that state intervention is very important for The economy, Roosevelt boldly draw lessons from The strengths of The planned economy, with The reform method to save The economic crisis, to avoid The fascist on stage, in restoring The economic crisis but also to maintain The stability of The society, it is very desirable, and The Roosevelt administration also created a new model, state intervention in The economy into a period of state monopoly capitalism in The United States. This system had a profound effect on the development of capitalism. The New Deal marked the end of laissez-faire capitalism and the beginning of large-scale government intervention in the economy. However, Roosevelt's New Deal is just a policy adjustment, which cannot change the essence of the capitalist system. Therefore, it is impossible to solve the basic contradictions of the capitalist system that led to the outbreak of the economic crisis, and it cannot fundamentally eliminate the economic crisis. Just like what is said in the film, people's memory is very short, and the fundamental contradictions of capitalism cannot be eliminated, which can only cover up for a while. 80 years later, in 2009, the economic crisis will still hit people, such as lehman brothers.

References

BBC news. (2019). The Wall Street Crash and Depression - Revision 1 - GCSE History - BBC Bitesize. Retrieved 5 December 2019, from https://www.bbc.co.uk/bitesize/guides/ztxbsg8/revision/1

Berkin, C. (2012). Making America, Volume 2: A History of the United States: Since 1865 (pp. 629-632). Boston: Wadsworth, Cengage Learning.

History.com. (2010). Stock Market Crash of 1929. Retrieved 5 December 2019, from https://www.history.com/topics/great-depression/1929-stock-market-crash