The fateful days of the great stock market crash entered modem history
almost 50 years ago to this day. The cyclic turning point of the U. S.
economy oc- curred, however, around June 1929, and economic activity
receded substantial- ly over the subsequent months. The onset of an
economic downswing thus became clearly visible before the famous crash.
But the October event stays in the public's mind as the symbol of the
Great Depression. For nearly four years, until the spring of 1933, the
U. S. economy plunged into a deep reces- sion. Activity declined, prices
fell, and there emerged a massive unemploy- ment problem. The economy
ultimately overcame this shock in 1933. Prices rose rapidly in spite of
substantial margins of unusual resources. Activity ex- panded, but
occasionally at a somewhat hesitant rate. The expansion, however, was
interrupted by another recession of major proportions during 1937-38.
The tragic sequence of events shaped public consciousness and influenced
new approaches and views in economic policymaking. The activist approach
to "stabilization policy" and a wide range of regulatory policies were
essentially justified in terms of this experience. These policies were
crucially influenced by our understanding and interpretation of the
Great Depression. The view of a radically unstable economic process
perennially on the edge of serious collapse gained wide popularity and
became a central element of the Keynesian tradi- 2 INTRODUCTION tion. It
encouraged, with supplementary interpretations, an interventionist and
expanding role of the government in our economic affairs.
