SOC 202 Lecture Notes - Invisible Hand
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Panic of 1837
Since the Panic of 1837 was the largest depression that America has faced, the
recovering process took a while. This economic downfall lasted approximately 8 years
in total. There was no real solution that took place too end the economic depression
other than a change in government. But there was something which helped during the
depression to resolve it. Given that, one of the reasons for the depression was banks
accepting hard money (gold and silver) and not paper money it was extremely difficult
for the society to do anything, because the money they had was not being accepted by
banks and others. There was one solution to this problem and it was The Sufflock Bank.
This bank was located in Boston, and the purpose of the bank was to trade your paper
money in exchange for hard money in other words gold or silver. Since there was only
one bank in the entire country that was willing to exchange your money, it was tough on
the people who lived far away. The aftermath of the depression was very severe.
Across the country unemployment rose, bankruptcy became common, and many
businesses failed. Throughout the 8 year depression 850 banks went completely out of
business. Over 250 businesses in New York alone failed. The only lesson learnt
following the depression was to elect a new government system and to change the
ruling of the banks.
During the 1837 panic, Adam Smith’s economic theory played a major role
throughout the depression. This may have been a primary reason behind the
depression. Adam Smith’s economic theory was based on the government not having to
involve itself in any economic encounters or problems that the economy was facing. He
believed something called the “invisible hand” which he believed meant, when people
started bargaining with each other the economy would recover itself, rather than the
government having to step in. This theory clearly did not work in favour of the
depression. President Van Buren thought to himself that if he would not interfere with
this economic depression it would resolve itself, but things ended up being a failure. A
theory which may have aided the depression would have been the Keynes theory.
Keynes theory states that government intervention and spending in the economy was a
necessity. Much of this was not present during the depression. The rich people would
refuse to spend their money because they wanted to save during the depression when
the economy was going downhill. Keynes theory may have helped in this situation
because, if saving exceeds investments there will be recession therefore the solution
was to spend more and discourage savings. The President at the time refused to help
with the recession, but if Keynes theory was used it would have made the government
more involved, which may have benefited to resolve the depression earlier.
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