Abstract Book of the 11th International Conference on Advanced Research in Social Sciences and Humanities
Year: 2026
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Rethinking Markets: The Great Depression and the Rise of Government-Led Economic Policy
Dow Lee
ABSTRACT:
The global economic collapse of the 1930s forced economists and policymakers to reconsider long-standing assumptions about how markets function during severe downturns. Classical economic theory had maintained that flexible wages and prices would naturally restore equilibrium after shocks. However, the prolonged unemployment, falling output, and financial instability of the Great Depression demonstrated that markets could remain trapped in deep recession despite these adjustments. The gold standard further aggravated the crisis by limiting governments’ ability to expand the money supply or pursue independent monetary policy. Historical evidence shows that countries that left the gold standard earlier, including the United Kingdom and the United States, began recovering sooner, while nations that remained committed to it longer, such as France and Germany, experienced extended economic stagnation. In response to these failures, Keynesian economics introduced a new way of understanding economic instability. John Maynard Keynes argued that total spending within an economy—aggregate demand—plays a decisive role in determining employment and production levels. When private demand collapses, economic recovery may require direct government action. Keynes proposed that fiscal measures such as public investment, government spending programs, and tax reductions could stimulate demand and revive economic activity. These ideas were reflected in policy initiatives such as the New Deal in the United States, where large-scale public works and social programs aimed to increase employment and restore economic confidence. The intellectual shift from classical economic thought to Keynesian demand management marked a significant turning point in modern economic policy. Keynesian principles later shaped the development of postwar economic institutions and influenced government responses to recessions throughout the twentieth century. The experience of the Great Depression therefore remains a critical case study for understanding the relationship between economic theory, policy innovation, and the role of government in stabilizing modern economies.
Keywords: fiscal stimulus, Keynesian economic theory, macroeconomic policy, monetary constraints, postwar economic institutions