The Great Depression began in 1928 and ended in 1939. It led to a worldwide decline in demand and consequently closure of many factories. This declined the purchasing power of the people which led to a further fall in demand and ultimately prices. It caused massive unemployment all over the world. It began with a stock market collapse in the US but spread all over the world. Different economists had a different point of view about the cause behind the Great Depression and measures to prevent its recurrence. Some of these viewpoints are highlighted below :
1. Marxist economists said that this type of crisis is an essential nature of capitalism and
2. can be removed only with the establishment of socialism.
3. JM Keynes argued that the state has an important role to keep the economy going. If it fails to intervene effectively, it might lead to depression.
4. Keynes argued that when demand falls, the state should invest funds and increase employment opporutinites. This will help the people to earn money and increase demand for goods in the market. This will help the economy to revive from depression.
5. Austrian economists argued that the great depression was the result of the monetary policies of the federal revenue during 1920.
6. Milton Friedman and Anna Schwartz wrote a book “A Monetary History of the United States’. In this book, they have said that the cause for great depression is the fall of the money supply.
7. Other neoclassical macroeconomists have said that the cause behind this depression was the different labor market policies.
Although each viewpoint has some significance, I agree with Keynes. The state had no control over the demand and supply market forces. The governments of capitalist countries were hesitant to intervene in the economy and this is the main cause behind the crisis.
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