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The causes of the Great Depression are still debated among economists and historians, with some attributing it to the 1929 stock market crash and others pointing to a series of growing problems. Factors such as the contraction of the money supply, failing banks, and regulatory mistakes contributed to the collapse. The depression had a global impact, and World War II is often seen as the end of it.
Although there is currently no consensus among economists when trying to pinpoint the exact causes of the Great Depression, many historians feel that the 1929 stock market crash in the United States was the ultimate cause of the depression. Others, however, maintain that the stock market crash was just a symptom rather than a cause of the Great Depression, pointing to a series of growing problems prior to the stock market crash that caused a volatile situation.
Several factors combined to become the causes of the Great Depression. The US Federal Reserve made a series of decisions that contracted the money supply and at the same time, banks in the US began to fail. Whether these factors caused the stock market to crash is up for debate, but eventually the stock market crashed, causing a ripple effect around the world. Free markets were affected and money values plummeted, and although interest rates also dropped, most Americans were feeling enough pressure not to spend or not spend their money.
Ultimately, the causes of the Great Depression were numerous, not just one action or condition that led to the collapse. What could have been a less severe recession turned into a depression as consumer confidence plummeted; consumers simply didn’t want to spend their money, which led to a slower economy. Compounded further by the lack of collateral on the part of the big banks which ended up in catastrophic collapse, the markets suffered as people felt it would be wise to withhold investment and spending until markets straightened out. This has led to decreased demand.
Other economists believe that the causes of the Great Depression can be attributed more to regulatory mistakes made by government agencies. When the banks started failing, the Federal Reserve simply watched and waited to see what happened. Some economists argue that the Federal Reserve should have stepped in to keep the biggest banks from failing, thus preventing the widespread panic that led to a run for money. Others, however, believe that capitalism itself is designed to fail when too much capital is gained by a single entity. This Marxist view essentially points to the excess accumulation of wealth as a social issue that must be resolved, not simply an economic one.
These economic issues were not isolated to the United States. The Great Depression spilled over into major markets across the world, and Europe also felt the devastating effects of the depression. Historians and economists often point to World War II as the end of the Great Depression, as manufacturing jobs were created to create armaments and other war necessities.
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