The Great Depression of the 1930s Demonstrates Crisis and Depression of a Prolonged Evolutionary Cycle

The Great Depression of the 1930s Demonstrates Crisis and Depression of a Prolonged Evolutionary Cycle

DOI: 10.4018/978-1-5225-2170-9.ch003

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Msp-Analysis Of The “Great Depression” Of The 1930S

Dynamics of the economic indices reflects the influence of various factors. Pure picture of “evolutionary cycles” in the real dynamics is rare event because stochastic internal and external shocks perpetually influence onto both the position of long-term equilibrium point 978-1-5225-2170-9.ch003.m01 in the plane 978-1-5225-2170-9.ch003.m02 and the geometric form of “evolutionary branches”. Sometimes it is difficult to find an “evolutionary cycle” in an intricate pattern of change of economic indexes. But there are situations when the “evolutionary cycle” becomes visible as the main trend of change of economic indicators. These are situations when point of long-term equilibrium quickly moves in the plane 978-1-5225-2170-9.ch003.m03 and the dynamics of economic system takes the form of a typical evolutionary cycle.

We use below MSP-model of economic system for the analysis of stylized facts collected in the paper of Robert Solow (1957). Table 1 contains Solow’ data for nonfarm industry of the U.S. economy. Share of property in income 978-1-5225-2170-9.ch003.m04 (column (2) in Table 1) is almost the constant.

Table 1.
Stylized facts for the U.S. economic system (1909-1949)
978-1-5225-2170-9.ch003.g01

Source: Solow (1957).

Cobb-Douglas production function (18) in Chapter 2 contains parameter 978-1-5225-2170-9.ch003.m05 which describes the share of capital (of property in wide sense) in income in optimally functioning economy (see for example Rabbani (2006)). Consequently Cobb-Douglas production function is the good theoretical approximation for the economy with constant share of capital in income.

Total factor productivity (Solow’ technological factor) can be calculated by means of the equation (27) in Chapter 2 in which we substitute parameter 978-1-5225-2170-9.ch003.m06 with annual share of property in income 978-1-5225-2170-9.ch003.m07. The following chain of formulas was used as algorithm for calculation of “efficiency” and “density of conditions” of the U.S. economy.

978-1-5225-2170-9.ch003.m08 (from the equation (27) in Chapter 2) (1)
978-1-5225-2170-9.ch003.m09
(2)
978-1-5225-2170-9.ch003.m10
(3)
978-1-5225-2170-9.ch003.m11
(4)

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