why did the Great Depression happen?
Since 1930 it has been the norm in most developed countries for AVERAGE PRICES to rise year after year. However, before 1930 deflation (falling prices) was as likely as INFLATION. On the eve of the first world war, for example, prices in the UK, overall, were almost exactly the same as they had been at the time of the great fire of London in 1666. Deflation is a persistent fall in the general price level of goods and SERVICES. It is not to be confused with a decline in prices in one economic sector or with a fall in the INFLATION rate (which is known as DISINFLATION). Sometimes deflation can be harmless, perhaps even a good thing, if lower prices lift real INCOME and hence spending power. In the last 30 years of the 19th century, for example, consumer prices fell by almost half in the United States, as the expansion of railways and advances in industrial technology brought cheaper ways to make everything. Yet annual real GDP GROWTH over the period averaged more than 4%. Deflation is da
Johnson (economist, Joint U.S.-Saudi Arabian Commission for Economic Development) addresses himself to the events that led to the worldwide economic depression of the 1930s. In his view, the underlying cause was the undervaluation of gold and the consequent worldwide shortage of gold reserves for banking systems after World War I. This triggered a sustained international price deflation and brought about the economic collapse that plagued the world from 1929 until the outbreak of World War II. The major villain in Johnson’s scenario is the Bank of France and its misguided monetary policies. The highly refined nature of the subject matter and the dense writing limits this book’s appeal to specialists. Suitable for academic libraries with large collections in money and finance. Harry Frumerman, formerly with Hunter Coll.
