This paper points out the fiscal policy similarities of Ronald Regan's "Reganomics" of the 1980's and the conditions that existed in the 1920's that were major factors that contributed to the "great depression." Currently there are two different arguments as to why the great depression occurred. Some scholars claim the monetarists are to blame because they took a free market approach and should have they taken a more activist approach with the Federal Reserve System, and adjusted the money supply at crucial points. Had this been done, the monetarists claim a depression could have been avoided. In this case blame could be directed at government and the decisions of individuals.
The other school of thought is a Marxist approach, which believes the causes of the great depression stemmed from an under-consumption problem, which was the result of a capitalist run government. Thou the 20's have been portrayed as an era of prosperity, this prosperity was only realized by a small portion of Americans. Under the capitalist government, unions were weak, workers had little protection, and welfare programs were non-existent. Corporations were realizing large profits, but were not passing these profits on to the working class. During the 20's the wealthier increased their wealth, while the average American saw little, to know increase in their income. These profits were the result of a tremendous increase in productivity in the era, largely due to the application of new chemical processes, machinery, and scientific management.
Since these profits were not being passed onto the average worker, these workers were less likely to purchase durable goods, such as automobiles and appliances. Now that productivity was up, there were no consumers who were able to purchase these products. Corporations could have cut prices to make their products affordable for the masses, but because a small number of corporations controlled the markets, price competition was virtually outlawed that would have lowered prices.
