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Word Count: 898
The Great Depression is probably one of the most misunderstood events in American history It is routinely cited as proof that unregulated capitalism is bad and that only a massive welfare state huge amounts of economic regulation and other interventions can save capitalism from itself Among the many myths surrounding the Great Depression are that Herbert Hoover was a laissez faire president and that FDR brought us out of the depression In order to investigate this first it is necessary to explain the causes of the Great Depression and then to compare and contrast the policies of Hover and FDR The Stock Market Crash in October of 1929 is often cited as the beginning of the Great Depression but did it actually cause it The answer is no First the stock price for a particular company merely reflects current information about the future income stream of that company Thus it is a change in available information that changes the stock price When the Fed began to raise interest rates in early 1929 this began the tumble However a stock market crash could cause people to increase their liquidity preference which might lead them to hoard money This is exactly what occurred when people began to hoard their money People want to have their assets in a readily convertible form such as money There are several misconceptions about hoarding money First hoarding is not the same thing as saving If I put my money into a savings account that money is lent out to someone else who then spends it Second hoarding by itself cannot cause a recession or depression As long as prices and wages drop instantly to reflect the lower amount of money in the economy then hoarding causes no problems Indeed hoarding can even be seen as beneficial to those who dont hoard since their money will be able to buy more goods as a result of the lower prices If a country
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