The Liberal Response to Classical Liberalism

1. The Liberal Response to Classical Liberalism

2. How did classical liberalism respond to competing ideologies? Outcome 2.8

3. Welfare Capitalism • 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.

4. Welfare Capitalism at work… • 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

5. Theodore Roosevelt and Welfare Capitalism… • 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. Look at the National Progressive Party’s platform (pgs 143-144) What three principles did the party hope to implement that challenged classical liberalism?

6. The Emergence of The Welfare State • 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. modern liberalism

7. THE ROARING TWENTIES • 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.

8. 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

9. 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.

10. 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

11. THE GREAT DEPRESSION • 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. 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

12. A Proposed Solution: Keynes • 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

13. Demand Side Economics (Keynesian) MONETARY POLICY • 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 FISCAL POLICY • 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.

14. Keynes’ Regulation of the Business Cycle prosperity FISCAL POLICY Increase government $ Decrease taxes MONETARY POLICY Increase $ supply Decrease interest rates FISCAL POLICY Decrease government $ Increase taxes MONETARY POLICY Decrease $ supply Increase interest rates depression Deficit financing Pg. 146-147