The Great Depression and Crisis of 1929
📌 The economic crisis in Marina's region led to reduced demand for non-essential goods like shoes, forcing her to cut production from 100 pairs/day to 50 pairs/day and lay off half of her 10 workers.
📉 The "Crazy Years" of unbridled optimism in the US, characterized by stock market speculation, culminated in Black Thursday (October 29, 1929), causing a financial break and global economic crisis.
🌍 The crisis generalized as Western production and trade contracted, and protectionist barriers exacerbated the situation, severely impacting agricultural/raw material exporting countries.

Classical Theory vs. Keynesian Economics
⚙️ Classical/Marginalist theory assumed that unemployment was mostly voluntary or transitory, believing that falling wages would automatically clear the labor market (Law of Supply = Law of Demand, or Say's Law).
🛑 Keynes opposed this, arguing that involuntary unemployment could be permanent due to insufficient effective demand.
💡 For Keynes, demand creates supply; if demand is low, supply contracts, leading to stagnation even with low wages.

Keynes's Theory of Effective Demand
🛍️ Effective demand consists of Consumption and Investment.
📊 Consumption depends on income, but the propensity to consume tends to decrease as income rises (as savings increase), suggesting a need for income redistribution toward poorer classes to boost demand.
🧠 Investment is driven by entrepreneurial expectations, which Keynes called "animal spirits"—unpredictable psychological factors that cause volatility.

The Role of the State in Overcoming Crisis
🏛️ Keynes proposed strong state intervention to boost effective demand when the market fails to self-correct.
🛠️ Fiscal Policy: The state uses public spending (e.g., infrastructure projects) to increase employment, boost consumption, and complement private investment.
💵 Monetary Policy: The state implements expansionary policy by issuing currency to lower the interest rate, counteracting the high "preference for liquidity" and encouraging entrepreneurs to borrow for productive investment rather than hold cash.

Key Points & Insights
➡️ The Great Depression highlighted the inherent weakness of unbridled capitalism and the failure of markets to self-regulate during severe demand shortfalls.
➡️ John Maynard Keynes fundamentally shifted economic thought by asserting that effective demand drives production, not supply alone, necessitating state action.
➡️ Actionable state tools to combat recession are Fiscal Policy (public works to directly increase income/demand) and Monetary Policy (lowering interest rates to encourage investment).
➡️ Following WWII, Keynesian policies fostered the welfare state and the "30 golden years" of economic stability through managed markets and international coordination (IMF, World Bank).

📸 Video summarized with SummaryTube.com on Oct 06, 2025, 22:51 UTC