The consequences of this were devastating. There was increasing poverty,
desolation, homelessness etc. Economists and politicians have discussed the causes
of this decline, ways to get over it and possible ways of preventing it from
happening again. Marxist economists argued that this kind of crises happened because
of capitalism. They also thought that it could be prevented by the establishment of
socialism. On the other hand, economists like JM Keynes argued that the state is
responsible to keep the economy going. If it fails to do so, it can lead to
situations of depression. Keynes argued that during economic decline, when demand
decreases, the state should invest funds and generate employment which will help
people to earn money and demand goods in the market. This generation of demand
through state action will help the economy to revive.

Franklin Roosevelt, who became the President of US, announced “the New Deal”
which promised Relief to the victims of depression, Reform of financial institutions
and steps to ensure economic Recovery (The Three Rs) by undertaking large public
works. However, when the war started, state expenditure on armies and armaments
suddenly increased. This increased the factory production and demand for farm
produce. He also introduced the much needed social security system in the US. It
established a permanent system of universal retirement pensions (Social Security),
and unemployment insurance. It also gave welfare benefits for the handicapped and
needy children in families without fathers. It established the framework for the
U.S. welfare system. In fact, Great Britain had taken the lead in this direction
even before the Depression when the war was still on. These basically consisted of
unemployment insurance and old age pension schemes. Towards the end of the Second
World War, Britain also adopted many social security measures like unemployment
doles, sickness coverage, health schemes, child care etc. All this made up the idea
of a Welfare State, a state which ensured a basic minimum dignified life for all
citizens. It also took care of their most elementary needs like food, housing,
health, child and old age care and education. The state had taken on the
responsibility of providing employment to the able bodied citizens. In this way, the
state tried to reduce the effects of the ups and downs of market based capitalism.