The Tenets Of Capitalism During The Great Depression

A look at the world today shows that capitalism is the most widely accepted economic theory and has succeeded in stabilizing most countries. However, some of the tenets of capitalism are said to have contributed immensely to people finding themselves in certain social conditions. The first element of capitalism is the fact that players in the economy are driven by a constant need to make profit. This profit motive is what makes people find resources and invest. Their aim is to make more resources using less effort each time. An economy driven by capitalism is also characterized by people working for the investors because they want to earn some form of profit-wages. In capitalist economies, the lack of employment can lead to poverty because …show more content…
Prior to the Great Depression of the 1930s, the classical economics had been widely accepted. Classical economists called for a laissez-faire economy, where competition was allowed and the government had a limited role. They believed that the economy was self-adjusting whereby a situation such as a depression would resolve itself. Theoretically, low interest rates during depressions would act as an incentive for investment thus spurring a recession (Jackson& Wolinsky, 2006). During the Depression, the economy failed to adjust itself, leading to Keynes advancing another theory on how the economy should work ideally. He said that the economy was influenced heavily by the aggregate demand in the economy. Aggregate demand is a factor of other variables which affect inflation, employment and so on. Keynesian economists called for the stabilization of aggregate demand levels using fiscal and monetary policies. During the recent economic meltdown, Keynesian economists would have called for increased government spending and tax cuts to spur economic growth (Jackson& Wolinsky,