October 7 Lecture – The GloryAge of Western Capitalism 1940s-1970s
LectureA– The Great Depression and Public Policy
Lecture B – The People's War, the People's Peace?
1) The unprecedented scope of the Depression
2) What caused the Great Depression?
3) Why did Governments seem powerless?
^^ all of these are in the notes from last week.
Don't write the intellectual history of laissez faire. Understanding state intervention and talking about
state intervention. Mention the philosophical switch, but not the entire thing at all.
• Three hours long.
• One main question.
• Important: how Fraser elaborates on how democracy grows.
• Anything that shows you've read the book.
4) the limits of orthodox thought
• Economics profession were in infancy – small discipline by today's standards (history,
philosophy, etc were far more popular in the 1920s)
• classical liberal economic thought reigned supreme.
• Orthodox economic thought
◦ balanced budget
◦ low spending
◦ strong currency, linked to a gold standard
• by linking currency to gold, you got stability and deprived self of freedom to set national goals
by tinkering with interest rates and allowing currency to devalue.
• Early years of depression, they would try to balance budgets by cutting spending and
5) The ideas of John Maynard Keynes
• mind the gaps
• insurance and infrastructure and public goods
• keynes, plans and automobiles? Or did he want to nationalize industry a la France or Italy and
have the state build consumer goods?
• No; just reflate, prime the pump, then step back.
• Denounced the Versailles peace conference. Thought it would stoke fires of nationalism.
• 1936 book, theory of unemployment was statement of everything he was forming in his mind.
Governments ought to be more activist.
• Ideas were only put into practice in Sweden, and lesser in the US and Canada around 1938.
• if governments weren't willing to take his prescriptions in 1936, by the time they entered the
war they did so without choice. • Book
◦ did not call for redistribution of wealth not a socialist
◦ did not say governments run long term deficits
◦ profound liberal
◦ pragmatic centralist
◦ associated with massive public spending of the 50s 60s 70s.
• Saved capitalism from destroying itself. Identified the gaps in the free market, into which the
state must step. Goal was full employment.
• If markets have gaps, they fail to provide the infrastructures that the public needs.
Markets failed to provide jobs, markets cannot be relied upon to provide law and order (something only
the government can provide).
He says that government has no business in business. He saw government activity in the realm
of infrastructure not a 30 year process. Legitimate for governments to reflate economies by ejected cash
through them, and by tax cuts in tough times. This would keep the economy going. The injection of all
this money would run away inflation. Beyond practical concerns, there were moral suspicions of
• wrote that the difficulty with accepting Keynes was that most people thought inflation
dangerous, psychologically corrupting and immoral. Inflation was viewed as something that
was unsustainable and an unwanted burden.
• Almost universal fixation on a balancing of budgets and avoiding inflation. Could be found
where there was a modern industrial economy.
6) the classic case of muddling through: Fance during the 30s, before its conversion to Keynes after the
Leon Blum PM
• criticized of muddling through and dragging Europe down with France
• unemployment relief was left to be the cities and regions.
• Tried to shield themselves with tariffs
• agricultural sector was propped up with duties and tariffs, keeping foreign products off their
• unemployment did nothing to reflate the economy
• refusal to devalue the franc
• almost “willing to sacrifice the economy to the value of the franc”
• set the tone for the other democracies.
Two most important democracies, France and Britain muddled through the depression, refusal to lower
interest rates. Tied to the concern with inflation, that it might be an artificial stimulus.
Autarky – closing within, and an emphasis on self-sufficiency.
Fiscal orthodoxy, balanced budgets, tariffs on agricultural products. Subsidies to ailing industries.
Defend the franc. Refusal to tinker with money supply, with interest rates.
• struggles ot muddle through and honour the promises it already made with social advances and legislation undertaken in the 20s.
• No great economic innovations come from Great Britain at this time.
8) Canadian Content. From orthodox liberalism to Keynesian economics. From localism to the idea of
• Great depression changes the spending on all things social.
• By 1933 national income is 1/2 what it had been in 1929. industrial output is 57% of 1929 level
• unemployment hits 25% and the welfare state is practically non-existent at this time in Canada.
• No central bank at the start of the Depression
• BNAAct, provincialism, turf war.
• Nobody promised fit heroes to returning Canadian veterans.
• Doesn't have much in the terms of welfare state. Germans and the British did. Cities and
private charities cared for Canada during the Great Depression.
• Ave to have lived in certain cities for a certain amount of time. Localism is order of the
• Key impediment was constitutional DNAof the constitution BNAAct
◦ federal government got the most of the economy.
◦ King and Bennett were the two PMs during the Depression.
King and Bennett
• willing to provide loans to help it
• rural resettlement schemes
• initially avoid taking on new responsibilities in regards to unemployment.
• government can't admit that they're in charged of looking after teh unemployed. This is a
matter of the individuals. Only becomes a federal problem when it's a situation beyond control.
This was his view in the 30s. (no wonder he lost the 1930 election)
• returns to power in 1935.
• by 1937, he is ready to spend to get Canada out of the great Depression. Now willing to use
some of Bennett's ideas. Federalists were ready to step in.