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Causes Of The Great Depression And The Video

David M. Kennedy - The Great Depression: Causes, Impact, Consequence

Causes Of The Great Depression And The - can speak

There are multiple competing interpretations about what caused the Great Depression. The debate is important because the public and policy makers ever since have demanded that such a disaster never again happen, so it is imperative to explain why. Economists are not agreed on what caused the depression or what prolonged it. The political interpretations especially important in the USA are as follows:. Many economists at the time argued that the sharp decline in international trade helped to cause the depression. They usually blame the Smoot-Hawley Tariff of , which raised rates and caused other countries to retaliate. Causes Of The Great Depression And The.

Posted by Mises Wire Nov 18, Culture 0. In his writings, Milton Friedman blamed central bank policies for causing the Great Depression. According to Friedman, the Federal Reserve failed to pump enough reserves into the banking system to prevent a collapse in the money stock. According to Friedman, as a result of the collapse in the money stock, economic activity followed suit. Thus, by July year-on-year industrial production had fallen by over 31 percent see chart. By October the CPI was down A close examination of the historical data Causes Of The Great Depression And The that the Fed was actually extremely loose and pumped reserves into the system in its attempt to revive the economy. Also, the three-month Treasury bill rate fell from 1.

Another indication of a loose monetary stance on the part of the Fed was the widening in the differential between the Causes Of The Great Depression And The on the ten-year T-Bond and the three-month Treasury bill. The differential rose from 0. Instead, it is indicative of a shrinking pool of real savings brought about by the previous loose monetary policies of the central bank. Indeed, the yield spread increased from —0. In addition to this, at some stages monetary injections were massive. For instance, the yearly growth rate of AMS jumped from — Then, from —0. Such large monetary pumping amounted to a massive exchange of nothing for something and to a severe depletion of the pool of real savings needed to sustain economic growth. In response to this, banks curtail their lending activities and this in turn sets in motion a decline in the money stock.

In this regard, after growing by 2. To put it briefly, the money makes a full circle and goes back to the original lender.

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Economic depressions are not caused by the collapse in the money stock but come in response to a shrinking pool of real savings on account of the previous easy monetary stance of the central bank. Consequently, even if the central bank were to be successful in preventing the fall of the money stock, this would not be able to prevent a depression if the pool of real savings is declining. Also, even if loose monetary policies were to succeed in lifting prices and inflationary expectations, this would not revive the economy as long as the pool of real savings is declining. Note again that contrary to popular thinking, depressions are not caused by tight monetary policies, but are rather the result of previous loose monetary policies.

On the contrary, a tighter monetary stance arrests the depletion of click pool of real savings and source lays the Causes Of The Great Depression And The for economic recovery.

Furthermore, the tighter stance reveals the damage that previous loose monetary policies did to the capital structure.

As the chart below shows, a tighter monetary policy depicted by the downward-sloping yield curve from August to Mayexposed the damage inflicted to the capital structure because of the previous loose monetary stance of the Fed. The sharp fall in the money supply from to early was in response to the collapse of this pool. The sharp decline in various key economic indicators was also in response to the decline in the pool of real savings. The Fed made strong attempts to lift the money supply by aggressively expanding its balance sheet. This post has been republished with permission from a publicly-available RSS feed found on Mises.

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