ABSTRACT
Prior to the Great Depression of the 1930s, most orthodox Western economists comfortably dismissed the Marxian prediction of the collapse of capitalism in the pit of a devastating business depression. Many of them admitted a regrettable tendency in capitalism toward recurrent business depressions, and some even went so far as to recommend discretionary social policy, in the form of monetary policy and “psychological policy” (soothing proclamations by political leaders to ameliorate panics), as a means of reducing their severity. But the notion that business depressions could possibly become so severe as to ignite a sweeping social revolution was generally regarded as preposterous in the extreme. The prevailing complacency on the matter was briefly shaken by the extreme severity and persistence of the Great Depression, which seemed folly immune to the traditional monetary and psychological prescriptions. But soon all was well again. Fiscal policy was added to the armory of anticyclical policy instruments by J. M. Keynes, World War II thoroughly eliminated the excess capacity problem, and since World War II not only have there been no repetitions of the Great Depression of the 1930s, but the dynamic performance of capitalism seems generally superior to that of the era before World War I. 1
