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ECO321 - March 27.docx

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ECO321 – March 27, 2014 Gold Standards • Looking at Graph 3 (Consumer Price Index: January, 1914 – December 1939) o In about 1921 o Britain went off gold standards and then recovered from depression o USA went off gold standards but then came back o There seems to be a correlation between going off the gold standards and then recovering. o There seems to be an issue here: Is it because of the impact of gold standards on money supply and therefore on money supply that is response for correlation between gold standard and money or is it the interest rates? o Gold standards allows us to reduce (or increase – CHECK which one) interest rates o There’s not enough gold; it’s restrictive o In most recessions, the economy contracts and interest rates sky rocket. o Look at the end of the graph, the gold standard is abandoned but the prices haven’t gone up very much – so what really makes prices go up? o A lot of what happened in US after 1931 is related to the bank crashes that happened after 1931. o The gold standards didn’t have a HUGE effect but did they have some effect? o In Canada we’re exposed to fluctuations and international depression no matter what because exports are going to collapse and it’s going to be harder for us to find capital. o It’s not until the 1920s that electricity and cars is important to the consumers, it was important only for businesses. o There are enormous changes in consumption in 1920s. o There was too much wheat produced in 1929; but why? Why did they over- expand so much and why didn’t they recover? o Prairies of the world were happily producing wheat when there was no wheat production during the world war (Europe wasn’t producing wheat because it was busy fighting)  So when the war ended, these countries went back to wheat production; hence there is over supply o The government by buying wheat, these pools controlled by co-ops bought the wheat from the farmers and then sold them over the years; so the farmers had to sell right away. The pools got a certain amount of money to give to the farmers. The pools controlled the farmers’ wheat in Canada and Canada’s wheat was 40% of wheat production in the world; so the pools started manipulating the prices of wheat. The pools kept back a portion of the wheat because if they reduce supply, prices go up. Pools set up price of wheat to $1.40 or something which was really high.  But SOON, The price of wheat completely falls, the pools are stuck with too much wheat, wheat market crashes.  These specific real factors (like technological advances, pools, etc) which are unique can by themselves explain the wheat crash.  STUDY THIS FOR THE EXAM
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