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Market hours: What is their effect on the economy?

By Brenna Fisher
web posted October 28, 2013

The Great Depression is often thought of as one of the most devastating times in America's history, alongside brutal wars and foreign conflicts. However, the Great Depression differs in the fact that it was caused by economic change, not human violence. Edward C. Prescott addressed the bust of the 1930's in his article "Some Observations on the Great Depression". While he covers many factors that contributed to the 1920's economic prosperity and the 1930's economic trials and then compares them to the prosperity of the 1990s, perhaps the most interesting observation he covers is the market hours. After research and comparison, he makes a positive statement, saying that because market hours stayed decreased, until about 1980, the market was still depressed.

While I believe Prescott makes some interesting points, his theory here is based mainly on the fallacy of false cause. He insinuates that market hours mean a depressed economy and essentially dictate the state of the economy, when in reality decreased market hours are just one factor of a depressed economy. The market hours dropped from 1,170 yearly in 1929 to 920 yearly in 1939 and increased by an average of 28 hours per decade, until 1980 (with a slight drop in 1979). Prescott makes special note of the fact that between 1939 and 1959, the market was only not depressed during wartime because the demand for goods was high. However, a quick study of history will show that during the 1950's, the economy was booming and public demand was high. Market hours are a dependent variable, one that is affected by economic state, not an independent variable, inducing economic stability or instability.

On the other hand, one cannot just disregard that there is some logic in Prescott's argument. It is an obvious that the more hours a business is open, the more successful they will be, even if only by a small amount. My child care business is much more profitable now that I work 24 hours per week, versus when it started, as I was only working 3 hours per week. Time is a scarcity, and the more you use towards earning a profit, the more profit you will gain. This may not always be the best use of your time, and you may be foregoing opportunity costs, but you will make profit. That being said, it would make sense that the more (or less) market hours worked each decade, the more (or less) profitable the economy will be.

In saying that, I seem to have pushed myself into a contradiction. First, I stated that market hours were a dependent variable, affected by the economy, and then I said that the amount of hours worked would naturally mean more prosperity. Allow me to clarify. As long as the economy is doing well, the market hours would increase, which would lead to more prosperity. This is observable in the fact that each decade after the 1930s had increasing market hours, and became more prosperous each year. Finally, there are always other factors contributing to the economy's growth or decline. For example, during 1959, Prescott states that because market hours were still low (although increasing), the economy was in a state of depression. However, Americans were still hesitant about working in stocks after the fiasco of the Great Depression; they made a choice in the margin to slowly and steadily jump back into the stock market, rather than cannonballing in. Lower market hours did not mean a depressed economy in the 1950s, it meant that America was still building itself up from that hard time.

In conclusion, while there is some truth to Edward C. Prescott's article "Some Observations on the Great Depression", I do not find it to be without fallacies or faults. Market hours are not the influencing factor of the economy, and one cannot determine economic state by simply looking at a chart of yearly market hours. Lastly, as with all things in economics, it is influenced by outside factors as well, and all this must be drawn upon to explain certain trends.  ESR

This is Brenna Fisher's second contribution to Enter Stage Right. © 2013 Brenna Fisher.





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