American Entrepreneurship Since 1900 Assignment: Theories of the Great Depression - Keynesian Theory

           Looking back on the Great Depression today, many people think they know the direct cause to why it happened and the reason it lasted so long. Everybody likes to point to Black Thursday, October 24, 1929 when the stock market seemed to go into free fall and on Tuesday, October 29, 1929 the New York Stock Exchange saw over sixteen-million shares traded. People who had heavily invested or borrowed found themselves in bleak situations as the banks had no money to give. Businesses closed and work was hard to find. Since there were few ways to make money, people were not spending money and there was no way for the economy to recover on its own. Another accepted belief is that the Great Depression ended once the United States geared up to enter World War II. However, those are just simplified understandings that most high school and even early college level students have been provided. The situation is more complicated and various economic theories are involved.

            The Great Depression did not suddenly happen in late October 1929 for no reason. There had been mounting problems in the United States’ economy for years. During the 1920’s the United States was still riding high from the Progressive Era with its innovation and the economic growth stemming from the rebuilding efforts in Europe after World War I. As the economy kept going strong, more people started investing in the stock market, but often only buying on margin (only paying a percentage of the stock’s value and borrowing the rest). But a big issue came from overproduction and supply in the agricultural industry. As the excess of product flooded the market the prices began to fall and farmers were struggling. Mirror situations were occurring in the industrial industry as demand for production increased but wages did not match, which caused a decrease in consumerism followed by a decrease in production. When the stock market crashed, the run on banks showed the lack of faith as banks began to fold under and people lost everything.

            Recessions and depressions are not unusual in an economic cycle after a financial crisis; this is strongly believed in the Austrian School of Economics. The issue with the Great Depression was why was it so severe? How can it be prevented from happening again? If a depression hits, how does an economy get out of it and recover?

An economic theory, known as the Keynesian Theory, was created by a British economist, John Maynard Keynes during the Great Depression. He believed that an economy is driven by the demand for goods and services. His theory about the Great Depression focused on there not being enough aggregate demand, which led to less spending, which spiraled to the need for less production and fewer jobs; a cycle where there was even less money available for spending to be injected into the economy. Aggregate demand is a term to describe how much somebody is willing to spend or consume in a year – but the ‘somebody’ encompasses all people, businesses, and governments of a country. As the depression continued on, the negative outlook about the situation would prevent businesses from investing in their company and that dominoed into lower employment and less output – perpetuating a depressed economy. Aggregate demand is too low for the economy to recover. Without an outward control, economies can not stabilize.

Keynes saw free markets as lacking the ability to provide full employment, so as a solution, he thought governments needed to be involved and have policies in place to stabilize employment and pricing. During depressions, governments should lower taxes and spend money to create jobs – even if it creates a government budget deficit. These jobs could be for infrastructure projects (which President FDR implements with programs like the Works Progress Administration and the Civilian Conservation Corps). By creating jobs there is income provided, which allows the spending of money, which helps the economy to keep moving. Aggregate demand increases and the economy is boosted. On the flip side, Keynes thought that during higher demand periods with a hot economy, the government should raise taxes to prevent inflation. Generally, Keynesian theory is a strong supporter of government involvement in order to control the economy.

            The Keynesian Theory does not provide the whole solution, however. Some economists stick to a classical economic theory where intervention should be left out and allow for free market supply and demand to eventually balance the economy again. Later, an economic theory brought forward by Milton Friedman and Anna Schwartz (mainly viewed as the Monetarist theory) posits that the Great Depression was not about the economy, but instead caused by limited money supply and mismanagement by the Federal Reserve. This theory began to win out over the Keynesian Theory when it could not explain why, in the 1970s, there was slow economic growth but inflation was high. Only after implementing solutions of the Monetarist theory (restricting money supply) did inflation decrease, though a recession followed. Monetarist actions were utilized again by the Fed during the 2007 recession when interest rates were lowered in order to stimulate the economy.

            There will continue to be theories and debates about the causes of the Great Depression in the 1930s. It remains a complicated issue. Economists keep studying the period and look for trends or similarities in the market that might reveal new ideas about it so they can hopefully prevent it from happening again. The Keynesian Theory seemed to fit the situation at the time of the Great Depression; however, it does not work for other economic disruptions. As time progresses, economics seems like a wild science that is still being understood and more theories will be developed in the future.         

 

 

 

Sources

Bernstein, Michael A. “The Great Depression as Historical Problem.” OAH Magazine of History 16, no. 1 (2001): 3–10. http://www.jstor.org/stable/25163480.

Dickson, Paul. “The Crash of 1929.” Bill of Rights Institute. https://billofrightsinstitute.org/essays/the-crash-of-1929. Accessed July 23, 2025.

Foldvary, Fred E. “The Austrian Theory of the Business Cycle.” The American Journal of Economics and Sociology 74, no. 2 (2015): 278–97. http://www.jstor.org/stable/43818666.

Hall, Robert E. “Why Does the Economy Fall to Pieces after a Financial Crisis?” The Journal of Economic Perspectives 24, no. 4 (2010): 3–20. http://www.jstor.org/stable/20799170.

Jahan, Sarwat, and Chris Papageorgiou. “Monetarism: Money Is Where It’s At.” Finance and Development. International Monetary Fund. https://www.imf.org/external/pubs/ft/fandd/basics/16_monetarism.htm. Accessed July 23, 2025.

Jahan, Sarwat, Ahmed Saber Mahmud, and Chris Papageorgiou. “What is Keynesian Economics?” Finance and Development. International Monetary Fund. https://www.imf.org/external/pubs/ft/fandd/basics/4_keynes.htm. Accessed July 23, 2025.

Ohanian, Lee E., and Lee E. Ohanian. “Understanding Economic Crises: The Great Depression and the 2008 Recession.” The Economic Record. 86, no. s1 (2010): 2–6. https://doi.org/10.1111/j.1475-4932.2010.00667.x.

Romer, Christina D. “What Ended the Great Depression?” The Journal of Economic History 52, no. 4 (1992): 757–84. http://www.jstor.org/stable/2123226.

Samuelson, Robert J. “Revisiting the Great Depression.” The Wilson Quarterly (1976-) 36, no. 1 (2012): 36–43. http://www.jstor.org/stable/41484425.

 

American Entrepreneurship Since 1900 Assignment: Growth in the Postbellum Economy

 California underwent rapid development in the later part of the 19^th-century. There would be several factors that influenced this such as the Gold Rush, immigration, westward expansion, employment opportunities, industry, and railroads. By evaluating census reports and labor statistics by sectors, a narrative reveals itself of growth and decreases. By researching into historical events that coincide with those decades, an explanation behind those numbers makes sense. A coherent understanding of the economic rise for the state can be made.

The latter part of the 19^th-century was a time of economic progress in California, a land incredibly rich in resources. Ceded to the United States in 1848 with the Treaty of Guadalupe Hidalgo, the land underwent rapid settlement with the Gold Rush of 1849. The thirst for gold brought in miners, followed by businessmen and development. The population continued to grow by the thousands. The first census that included California recorded a population of about 92,600 people but the next census, in 1860, showed significant increase, around 300% with nearly 380,000 people. In response to the need of organized governing, California was granted statehood in 1850. This hotly contested inclusion added to the larger issues boiling in the country over free and slave states that would eventually culminate in the Civil War. During the war, Californians were mainly pro-Union and the military took steps to secure ports, military posts, and government resources. For the most part, California was not strongly impacted by the hostilities that raged in the eastern and southern parts of the country.

            The Gold Rush was already drying up by the time war arrived. The mining labor would continue its precipitous drop in labor force into the new century. However, coming out of the Civil War, California continued to prosper in other ways. Farming had become a large commercial venture and labor statistics show a strong agriculture percentage through 1900, but then it would begin a slow decline. What were Californians doing for work if not farming, ranching, and mining? They were involved in businesses like trade, services, manufacturing, and producing commodities. This would be the new boon for the economy.

The 1860’s brought the railroads. The far western part of the country was now connected with the east taking only seven days to travel instead of four-to-six months. This technology would be the catalyst that continued to build a strong economy in the Golden State. California could export! There were markets for lumber, wine, and canned food. Produce such as fruits, vegetables, nuts, and grain could be shipped anywhere, especially with the invention of the refrigerated rail car. The availability of jobs, commerce, and tourism would continue to bring even more people out west, usually because of the railroad.

Americans could now travel to see the land they had heard incredible stories about. The railroad was more than happy to provide affordable fares to bring people to California. With visitors showing up, hotels, restaurants, and shops began to spring up around the train stops. Towns continued to grow and the service industry with it, according to labor statistics from the period. In 1890, nearly 19% of the labor force in California was within the Professional, Domestic and Personal service industries. These are the butlers, waiters, maids, cooks, gardeners, chauffeurs, and nannies. They were not just in the local businesses, though. Wealthy businessmen and other high class of American society were creating expansive homes in the flourishing new cities, which required domestic help. This is a simple economics principle of supply and demand in regards to a labor force and available jobs.

When things were already going well in California, another boost arrives with the focused drilling of oil. In 1876, the Pico Canyon oil field near Los Angeles was the first gusher in the state. Oil mining created the businesses of refineries that produced kerosine, candle wax, wheel lubricants, and gasoline (which was not a valuable product yet). Improving the cities, roads were being paved with asphalt. The new rush of the black gold led to numerous drilling operations, mainly in the San Joaquin Valley. With their success, even more products were being exported from the state, mainly by rail. This industry would continue, making California one of the leading oil-producing states, far into the 20^th century.

California’s economy would continue to expand as the progress and technological advancements opened jobs by the thousands. Westward expansion was continuing to bring more Americans out west who were finding employment in California. Immigrants from Asia were arriving to work in the land of opportunity. A strong and healthy labor force with a diverse composition of sectors is illustrated by census reports and labor statistics. The growth seemed unwavering through 1900, but then it stalls a little bit.

On April 18, 1906 an extremely powerful event shook California. The 7.9 magnitude earthquake could be felt as far north as Oregon and as far east as Nevada. It ripped open the San Andreas fault for nearly 300 miles. The quake and following fires would destroy San Francisco, most of the Bay Area cities, and causalities are estimated at over 3,000 deaths. Although economic growth in California would slow during the following years, areas not seriously affected by the earthquake would have higher population increases. As a result, increased labor and production would be higher than in the impacted locations. This led to the larger development of other cities which would have a role in economics, government, and culture for the next century, such as Los Angeles.

California has a rich history that was intimately influenced by several encompassing historical events that affected the entire country. By looking at census and labor reports a story develops on how that state became a powerhouse of business and exports in the late 19^th-century.

 

 

 

 

 

 

 

 

Bibliography

Ager, Philipp, Katherine Ericksson, Casper Worm Hansen, and Lars Lonstrup. “How the 1906 San Francisco Earthquake Shaped Economic Activity in the American West.” National Bureau of Economic Research. April 2019. https://www.nber.org/system/files/working_papers/w25727/w25727.pdf. Accessed July 3, 2025.

Gilder Lehrman Institute of American History. “Transcontinental Railroad Fact Sheet.” https://www.gilderlehrman.org/sites/default/files/inline-pdfs/Transcontinental%20Railroad%20Fact%20Sheet.pdf Accessed July 2, 2025.

Library of Congress. “Articles and Essays: Early California History: An Overview.” Collection: California as I Saw It: First Person Narratives of California’s Early Years, 1849-1900. https://www.loc.gov/collections/california-first-person-narratives/articles-and-essays/early-california-history/. Accessed July 2, 2025.

Michael, Andreas. “The Past, Present, and Uncertain Future of California’s Oil Business.” The Way Ahead. December 19, 2019. https://jpt.spe.org/twa/past-present-and-uncertain-future-californias-oil-business

National Park Service. “California’s Role in the Civil War.” Golden Gate National Recreation Area, California. https://www.nps.gov/goga/learn/historyculture/california-in-civil-war.htm. Accessed July 2, 2025.

Popp, Andrew, and Susanna Fellman. 2016. “Writing Business History: Creating Narratives.” Business History 59 (8): 1242–60. doi:10.1080/00076791.2016.1250742.

Rhode, Paul W. “The Evolution of California Manufacturing.” Public Policy Institute of California. 2001. https://www.ppic.org/wp-content/uploads/content/pubs/report/R_1001PRR.pdf Accessed July 2, 2025.

Takahashi, Kennith I. and Donald L. Gautier. “A Brief History of Oil and Gas Exploration in the Southern San Juaquin Valley of California.” Petroleum Systems and Geologic Assessment of Oil and Gas in the San Juaquin Basin Province, California. 2007. https://pubs.usgs.gov/pp/pp1713/03/pp1713_ch03.pdf.

U.S. Census Bureau. 1850 Census Records, “The Seventh Census of the United States: 1850 – California.” https://www2.census.gov/library/publications/decennial/1850/1850a/1850a-47.pdf. Accessed July 2, 2025.

U.S. Census Bureau. 1860 Census Records, “Population of the United States in 1860: California.” https://www2.census.gov/library/publications/decennial/1860/population/1860a-06.pdf. Accessed July 2, 2025.

U.S. Census Bureau. 1870 Census Records, “Population, with Race, 1870: Alabama through California.” https://www2.census.gov/library/publications/decennial/1870/compendium/1870e-07.pdf. Accessed July 2, 2025.

U.S. Census Bureau. 1880 Census Records, “General Population Tables, 1880: Alabama through Iowa.” https://www2.census.gov/library/publications/decennial/1880/vol-01-population/1880_v1-09.pdf

U.S. Census Bureau. 1890 Census Records, “Census Bulletin – Population of California by Minor Civil Divisions.” https://www2.census.gov/library/publications/decennial/1890/bulletins/demographics/134-population-of-ca.pdf

U.S. Census Bureau. 1900 Census Records, “Twelfth Census of the United States, Census Bulletin – Population of California by Counties and Minor Civil Divisions.” https://www2.census.gov/library/publications/decennial/1900/bulletins/demographic/10-population-ca.pdf

USGS. “The Great 1906 San Francisco Earthquake.” Earthquake Hazards Program. https://earthquake.usgs.gov/earthquakes/events/1906calif/18april/. Accessed July 3, 2025.