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Cause Of Great Depression

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The following are some of the theories as to the causes of the Great Depression:

*The Stock Market Crash of 1929 as a trigger-

On October 24, 1929, share prices on Wall Street collapsed catastrophically, setting off a chain of bankruptcies and defaults that quickly spread overseas. Economic instability had been growing for some time, however, the impact of the Crash of '29 was notable because Wall Street was where the wealthy of Europe had increasingly banked their gains. The Crash would dramatically reduce the total percentage of wealth held by the very top of the economic scale, and would create financial difficulties for many of them.

* A maldistribution of purchasing power-

Another theory holds that the fundamental maldistribution of purchasing power, the greatly unequal distribution of wealth throughout the 1920s, caused the Great Depression. According to this view, wages increased at a rate that was a fraction of the rate at which productivity increased. As production costs fell quickly, wages rose slowly, and prices remained constant, the bulk benefit of the increased productivity went into profits. As industrial and agricultural production increased, the proportion of the profits going to farmers, factory workers, and other potential consumers was far too small to create a market for goods that they were producing

The Federal Reserve and the Money Supply

*Quantity theory of money-

Another theory of the Great Depression involves the quantity theory of money. According to this theory, most of the depression's severity was caused by poor decision-making at the Federal Reserve. For the first four years of the Depression the Federal Reserve Board contracted the money supply at a time when they should have been expanding it



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