Economic Liberalism Social 30 3.3-3.5

Overall causes of the great depression

1. Overproduction/stockpiling

2. International tariffs and export dependent economy

3. Debt

4. Overconfidence in market

5. Lack of government regulation

6. Unequal distribution of wealth

Overproduction/stockpiling

People bought new machines during the roaring 20s and they had no need to replace them because they worked so well so companies began stockpiling inventory 

International Tariffs/export dependent economy

1. When U.S economy collapsed they made high tariffs against Canadian products so Canadian exports declined 

2. In canada, demand for its products declines in the late 1920s due to a rise in competition from other countries. Previously, they were exporting a lot of their resources 

Debt

Germany could not pay their debt and without this money, Britain and France could not repay their own debts 

Overconfidence

People felt like progress was inevitable and so they spent more than they had, no saving 

What was the biggest problem of the great depression

Unemployment and it was nearly impossible to get jobs

What area was most affected by the GD

The prairies - there was drought, weather conditions added to their problems

What was FD Roosevelts first set of movements

• First wave was short term 

• Stabilized the banking system through government insured bank deposits 

• Created Alphabet laws 

Some things FDR did to stabilize the banking system

• Guarantee bank deposits

• Separate commercial and investment banking

What was the goal of the alphabet laws

The goal of the alphabet laws was to create more jobs through public works such as the construction of roads and dams 

What was the AAA?

Insured that farmers were paid even if they produced less

What was the CCC?

Provided work for young men to counter unemployment through the creation of infrastructure  

What was the WPA?

Creation of work projects such as roads, parks, bridges, etc 

In FDR’s second wave, he created the new deal - what terms were a part of it?

• The goal of the second wave was to create better long term conditions 

• Higher taxes for the rich 

• Labor laws (Setting minimum wages and maximum hours + Government accepted idea of unions)

• Creation of social security (Old age Pensions) 

• Creation of the Securities and Exchange Commission to regulate the stock market 

Key Idea of the New deal?

Government proposes to use public spending to get the economy moving again because classical liberalism didn’t quite work to do this so the government needs to be more involved = modern liberalism

REVIEW - what is welfare capitalism?

A reaction against classical liberalism - little government intervention to protect workers but the focus is more on what business owners can do and does not address more systematic problems

Modern Liberalism

The second reaction against classical liberalism that goes beyond welfare capitalism and involves some government intervention but not as much as socialism/marxism

• Proposes that governments have program to help disadvantaged people and address underlying reasons for poverty via pensions/better education 

• Encourages that everyone is treated equally 

According to Keynes, what should the government do in times of prosperity? 

Governments should raise interest rates/taxes and reduce government spending

According to Keynes, what should the government do in times of recession? 

Lower interest rates/taxes and increase government spending 

What is fiscal policy and what was keynes belief about it?

1. Refers to government spending and taxation 

2. Keynes believed that the government needed to increase spending during recession to stimulate the economy 

3. Keynes believes that taxation needed to decrease during recession to allow more disposable income 

Monetary policy

1. Refers to interest rates – the government impacts amount of money available in the economy 

2. Low interest rates mean that consumers are more likely to spend and not save 

3. High interest rates mean that consumers are more likely to save 

How did Canada initially respond to the great depression?

• Initially, Canada responded to the GD through laissez-faire and there was no government aid 

• PM king rejected the idea of giving money to cities/provinces to help with unemployment 

• Eventually, R.B bennet became prime minister (who was a self-made billionaire) and began to take action 

What did R.B Bennet do?

1. Gave his own money 

2. Introduced the unemployment act

3. Increased import tariffs by 50% + promoted trade between countries that were a part of British commonwealth 

4. Established work camps in remote areas 

5. Proposed Prairie farm rehabilitation act - assist farmers in establishing irrigation systems 

What was the unemployment act?

gave money to Canadian provinces to develop job creation programs 

What was R.B Bennets “new deal”

R.B Bennet proposed changes similar to the new deal with progressive taxes, pensions, and more help for farmers 

REVIEW - Marxism

1. Believed that the only way to defeat capitalism was a class struggle between the proletariat and the bourgeois 

2. Marx believed that violence was necessary for chance and capitalism would inevitably fail’ 

3. This socialism favors the abolition of private property and the centralization of the means of production by the state 

4. Equality of outcome

Pre russian revolution

• Before the Russian revolution, there were many strikes because workers wanted basic rights and better conditions 

• However the Tzar’s army fired on the crowd 

• Ultimately, there were changes made but these changes were more helpful to the middle class (bourgeoisie) than to the peasants or workers but human rights were recognized and universal suffrage for men was made 

• Duma established as well – legislative assembly - but real power is with Tzar

February/March revolution 1917

1. Spontaneous revolution that began due to discontent from hunger 

2. There were strikes across the city causing the Tzar to step down and Duma becomes official government 

Vladmir Lenin

1. Was in exile in Germany 

2. Leader of the “Bolsheviks” 

3. Felt that Marx’s ideas could be adapted to Russia 

October Revolution 1917

1. Planned by the Bolsheviks 

2. They win and take power using force and establish a Bolshevik communist government with Lenin as the leader 

Post revolution - War communism

• Set of measures to transform Russia into a communist country 

• Abolish private trade, no free market 

• Confiscate the wealth of the rich 

• Nationalize industries and ration consumer goods at low prices 

Result of war communism

As a result, there was a decline in productivity, famine, conflict with the Koulaks, and the crop yield declined significantly - an example of when absolute communism doesn’t work

New Economic Policy

• In response, Lenin introduces a small amount of capitalism in reaction to the failures of war communism 

• Small businesses can once again exist 

• Peasants can be owners of agricultural land and can keep produce in excess of tax 

• But State kept control of banks, large industry, transport, and foreign trade 

Result of new economic policy

Helped the economy stabilize and demonstrated necessity of some capitalism

How did the Russian revolution play a role in the winnipeg general strike

Bolshevik revolution caused widespread fear of communism - many canadians were scared

Overall, why was the winnipeg general strike important

1. It was an example of discontent with classical liberalism

2. The strike was huge

3. Example of socialist-capitalist tension (Canadians were scared of communists

4. Demonstrated a lack of workers rights

What did the workers in the Winnipeg general strike want

• Better working conditions and better salaries

• Wanted the right to collectively bargain (unions)

How did the strike demonstrate a lack of workers rights

• Government sent in special forces  

• Foreign born leaders were arrested and deported without trial  

• Bloody Saturday - 2 killed and 30 injured

Did the strike cause change?

In the short term, no - many workers lost their jobs and those who didn’t had to return to work but in the long term it helped recognize the demands of workers

What are three keypoints under Stalin’s communist view

Collective ownership, No classes/State, planned economy

Property owned by the proletariat and managed by the state

5 - year plans

Stalin's attempt to increase industrial production and centralize economic planning 

In order to ensure sufficient production, stalin implemented collectivization where land was taken away from private owners and combined into large collectively worked farms

What do supply side economists believe

Would be opposed to socialism or modern liberalism and would be in favor of classical liberalism – they believe that government intervention does not work and should be minimized to the greatest extent possible (E.g Hayek and Friedman)

Friedrick Hayek

1. Supply side economist in favour of classical liberalism

2. Felt that supporters of modern liberalism such as Keynes did not really understand the economy 

2. Felt that the government should almost never intervene and that doing so would have terrible consequences 

Milton Friedman

1. Wanted limited government intervention in the economy  

2. Believed that the central bank can control money in circulation through monetary policy (absolute freedom) 

According to supply side economics, what should government do in recession?

During recession, supply side thinks that the government should stimulate supply by reducing taxes, privatizing public industry, and reducing interest rates – they believed that increased production creates its own demand 

Raegan beliefs

1. President Raegan is a supporter of Friedman and Hayek 

2. Wanted to reduce government role in the economy 

3. Supported trickledown theory 

Raeganomics

4. Wanted to lower taxes to that businesses can use that money to reinvent in the economy 

5. Wanted to deregulate businesses 

6. Less spending on social programs  

Trickledown Theory

the concept that wealth provided to the top of a system (such as wealthy individuals or large corporations) will eventually pass down and benefit those at the bottom 

Thatcher

1. Prime minister of the UK who wanted to reduce government role in the economy 

2. Supports Laissez-fare and classical liberalism 

What did Thatcher do

Thatcher’s administration privatized many government owned industries and reduced the power of unions 

Pros of Supply side economics

Recovery from stagflation and temporary economic prosperity 

Cons of supply side economics

Unnecessary, larger deficits, larger national debt, increased wealth inequality 

Deregulation

Process of removing government restrictions/rules in a specific industry or economy 

Neoconservatism/Neoliberalism:

Oppose government intervention in the economy and calls for a return to classical liberal ideas 

What is democratic socialism

Calls for more government intervention in the economy to create a more equal society for all – a term used to distinguish between the violent/revolutionary side of communism

• Supporters of democratic socialism want to nationalize only necessary services (Such as healthcare, education, pensions) and considers it an evolution not a revolution (against violence) e.g Tommy Douglas

Tommy Douglas

• Seen as the father of healthcare and introduced health care system in Saskatchewan 

• He was able to convince liberals to introduce universal health care 

2008 Economic crisis: Mortgage-Backed securities

Banks package up mortgages and sell them as investments – considered a fail-safe in the way that if some mortgages default, most won’t so other mortgages should make up for the shortfall

Subprime mortgages

Banks begin selling mortgages that are not good quality and people can’t really afford them. As a result, people default on them 

What was the result of so many people defaulting?

the mortgage-backed securities begin to fail and investors try to reclaim their credit default swaps, but the banks do not have enough to repay them – this led to a crisis and many lost their homes and jobs 

Bailout (what did this event show)

The U.S government feels like they have to bailout the banks/insurance companies – overall, it showed the flaws of neoconservatism and a call for more regulation