Americas Great Depression
Many people believe different stories about what caused the great depression. Some of these include the stock market crash of 1929, hoarding money, the gold standard, and sticky prices and/or sticky wages. It's because of these that America went through its poorest time ever.Although there were several reasons why the great depression started, this is the most cited one. However, this crisis did not actually cause the depression. The stock price of a company is only a reflection of the current information of the future income of that particular company. So when that current information changes, such as when interest rates go up, stock prices go down and they begin to tumble. A stock market crash might however cause people to sell their assets and hoard money.People hoard money because they are a
For example, they want to have their assets accessible in a transferable form, like money. But when too much of this occurs, it is called inflation. When all of these conditions occur, there is a recession or a depression. This also is not a problem as long as prices and wages drop to compensate instantly for the loss of money in the economy. As long as prices and wages go down to compensate for the loss of money in the economy, then there will be no problems. During this time period, America had a 100% gold standard for its money. If the Federal Reserve Board increases the money supply, then the prices and wages will go up, because more money will be used to by the same amount of goods and labor. Hoarding money is not the same as putting money in a savings account, because that is like lending money to someone else to spend. This causes the economy to buy less, which causes employers to make cut backs in production and employment. Because of the stock market crash, people hoarding money, the gold standard, and sticky prices and wages, America's economy was hit hard in the 1930's. Just hoarding cannot cause a recession or depression. Prices and wages usually change with the shortage of goods and labour compared to the amount of money that can be used to buy them. They had to learn the hard way what life is like in a depression. One reason why prices and wages might stick is referred to as menu costs, which means it costs money to change a price. For a country with a gold standard, the hoarding of money could be disastrous.
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