Download 2. The Liberal Response to Classical Liberalism

• Classical liberals gradually came to see the merits of some
of their opponents’ views and modified the expression of
some of their values and beliefs
• Rather grudgingly, classical liberals began to recognize
that some modifications were necessary. The basic
premise for these modifications was an acceptance of the
fact that those who believed in the pursuit of industrial
efficiency—laissez-faire capitalists--needed to develop a
social conscience and more concern for the equality rights
of workers
• Welfare Capitalism: a classical liberal economic system
combined with a government that used legislation to give
workers protection.
Examples: limited working hours, minimum wage,
pensions and medical insurance.
• Britain, for example, passed a series of Factory
Acts, beginning in 1810
• Each Act gradually improved the working
conditions in factories, decreased working
hours, regulated the ages at which children
could be employed, and regulated the number
of hours women and children could be
required to work
• Germany passed similar acts starting in 1883
• Still, capitalists did not gladly or easily give
way to new ways of thinking about society’s
responsibilities
Look at the National
Progressive Party’s
platform
(pgs 143-144)
What three principles
did the party hope to
implement that
challenged classical
liberalism?
• He was a reformer who recognized
some of the problems associated with
classical liberalism
• When the United Mine Workers of
Pennsylvania walked off the job,
instead of calling in the army against
the workers as owners had hoped,
Roosevelt threatened to use the army
against the owners should they refuse
to negotiate.
• He called this a “square deal” and
eventually forced the arbitration.
• In 1912, T. Roosevelt went on to form
the National Progressive Party because
he felt the Democrats and Republicans
were too resistant to change.
• The move from welfare capitalism to the
welfare state was motivated by the Great
Depression.
• The problems that arose during this period
made it obvious that the existing political,
economic and social order had failed.
• What began to emerge was
as we know it today.
• United States was the richest
country in the
world.(resources &
population)
• After the war the U.S.A.
became wealthy by mass
producing consumer goods
like radios and cars
• The USA also became the
breadbasket for Europe
during WWI.
• Factory workers were paid
well which meant they spent
money on consumer goods.
The beginning of the end...
• As the 20’s progressed , more and more people were buying
shares of companies “on margin” or “on time” (credit) and these
shares rose in price.
• Factories produced more goods than people could buy;
therefore, the supply of goods was much more than the
demand.
• After the war ended, America continued to produce large
amounts of grain. When France began producing grain again,
the market became flooded and the price of grain plummeted.
People began selling their stocks
THE WALL STREET CRASH
• In 1929 share prices were
rising but profits for
companies began to decline.
• By September and October,
the market was fluctuating
wildly
• On October 24th of 1929,
panic selling of shares
forced the value of shares to
drop drastically.
• By October 29th, the market
crashed.
• The stock market crash
brought an end to
prosperity in the U.S.A.
Other Causes of The Great Depression
• Demand for goods could not keep up with supply
• Droughts
• Wages did not increase
to match inflation
• Farmers went bankrupt
• Banks failed
• Factories closed
• Increase in unemployment
• High rate of corporate fraud
Conditions were much the same in Canada.
Angry farmers duped horse drawn automobiles
the “Bennett Buggy” after Prime Minister
Richard (R.B) Bennett.
See MWUC case study on pg 145-146
• By 1931, unemployed people were
lining up in breadlines since there
was no unemployment insurance.
• Countries used protective tariffs in
an attempt to protect domestic
industry, so global trade declined.
• By 1932, 12 million people were
unemployed.
• President Herbert Hoover feared
that assistance from the
government would make citizens
reliant and unable to stand on their
own two feet.
• In 1932, the American people
voted for Franklin D. Roosevelt as
president on a platform of
government intervention to get the
USA out of the Depression.
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Classical liberals believed that there would be full
employment when supply and demand were in
balance.
They also believed that the “natural law” of
economics was that good times were followed by
bad times. Therefore, it was the individual’s
responsibility to save for bad times during periods
of prosperity.
Keynes argued that the economy was unstable and
people reacted in times of uncertainty by hoarding
money, thereby harming the economy.
Because few people could predict the variances in
the market, most suffered during times of recession
and depression.
He proposed a solution to this problem through the
regulation of government spending, taxation, the
regulation of the interest rate and production of
money.
In doing so, governments could regulate consumer
demand, thus regulating the economy.
John Maynard Keynes:
A British economist who
developed the theory known as
“Demand Side Economics” or
“Keynesian Economics” in
response to Great Depression
Demand Side Economics
(Keynesian)
• Capitalism tends to move through cycles
–
–
–
–
Prosperity
Recession
Depression
Recovery
• During inflationary times, the government
should raise interest rates, raise taxes,
reduce spending and slow the production of
money. This takes money out of the
economy, thus slowing it down.
• During a time of growth, the government
must save money to prepare for a recession.
• During recessionary times, it is necessary for
government to lower interest rates, decrease
taxes, and increase government spending.
This puts money into the economy, thus
speeding it up and avoiding a depression.
• This may cause debt, or a deficit, but any
money lost will be recovered during the next
expansion phase.
• Interest rates
• Production of money
• Government spending
• Taxation
Franklin D. Roosevelt of the USA
used these ideas in the “New
Deal” to get America out of the
Great Depression. We will study
his policies more in depth in
chapter 6.
prosperity
FISCAL POLICY
Increase government $
FISCAL POLICY
depression
Decrease government $
Decrease taxes
Increase taxes
MONETARY POLICY
MONETARY POLICY
Increase $ supply
Decrease $ supply
Decrease interest rates
Increase interest rates
Deficit financing
Pg. 146-147
• Insert spectrum from pg
150