• Gold standard
• The Government
• Hoarding money
• Over Production Leading to High Tariff
• Stock Market Crash
• A Theory of Government Interference

The Gold Standard
In the 1930s, America had a 100 percent gold standard for its money. This meant that all cash was redeemable for a certain amount of gold--at this point one ounce of gold was worth twenty dollars in cash. Money is very inflexible because the amount of money within the economy is dependent solely on the amount of gold available. So, in other words, when people hoard their money, as explained above, the supply of money largely drops. All of these problems combined cause a downward trend in the economy, as what happened during the Great Depression.
Back to Top

The Government
The government was essentially created in order to help economy problems such as these. But, in retrospect, it is shown that it was the government that aided in part in the problem. First of all, the government was responsible for inflating the money supply in America by 60 percent in the 1920s. Next, was that the government raised interest rates in 1931, precisely the wrong action to take when the money supply is already low; it only further takes money out of circulation. It is indicated that if the government had only thought more of expanding the money supply, they might have been able to prevent what happened.
Back to Top

Hoarding Money
As mentioned previously, people wanted to hoard their money because they were afraid to spend it. People believed that after the crash, spending their money lost it forever. They had the idea that spending money would never make money, whether through investment, business, etc. These people may have been right to some extent, but the mass amount believing in this idea only made it worse. If no one spent their money, then there was no money at all in the business world. Therefore, those who had money were not losing any, but also not gaining any; and, those who had no money, had no way of getting money.
Back to Top

Over Production Leading to High Tariff
The Smoot-Hawley Tariff Act passed in 1930 raised tariffs to record high levels for our nation. The intention of this tariff was to protect farmers from foreign agricultural imports, because after WWI, with the recovery of European producers, there was a huge overproduction of produce in the 1920s. This caused a lower demand, and therefore lower farm prices in the late 1920s. Herbert Hoover was the president in charge when this Act was passed, concentrating mainly on helping the farmer, not realizing what it would do to the average citizen. After passed, the Act was made impossible to stop, for the tariff was still needed because production was still rising in many countries. When it was already bad, Congress agreed to raise taxes even higher. Clearly, the Smoot-Hawley Tariff was not the best action to take, as foreseen by many economists who signed petitions to undo it, but had been denied.
Back to Top

The Stock Market Crash
The Stock Market Crash on October of 1929 may be recognized as a catalyst for America’s Great Depression. Because of this crash in the stock market, many companies lost money, as well as those who invested in them. Nationwide, people began to prefer the money they did have physically present in their possession. It was this that caused the lack of money in banks, for people all tried to deposit their savings at once. It was for this reason as well that people began to hoard their money, meaning continuing to keep it in their possession if they got it.
Back to Top

A Theory of Government Interference
This ideal referred to Austrian economics, summing up their image of the causes of business cycles. In this theory, all business cycles are caused by intervention of the government in the market. In America’s case, the national banks lowered interest rates by overwhelming the economy with artificial money. Then, this money is invested in goods that are not correct with the market level interest rates. Next, the government must raise interest rates, to make up for what money was lost by lowering rates. Any further prevention by the government would then continue problems and therefore prolong recovery.
Back to Top