Causes Of The Great Depression

The Great Depression is widely known as the most devastating economic breakdown in the history of the United States. From 1929 to 1933 nominal GNP fell 46 percent, the real GNP fell 33 percent, and the unemployment rate dropped to 25 percent from just under 4 percent. In 1933 many banks numbering to about 8,000 failed because most people were trying to withdraw all their money from the banks all at once, so they wouldn’t lose it. There is many debate on whether banks were the leading cause of the Great Depression or if there failures were a result of the Great Depression. Some also thought that the failure of the banks was completely irrelevant to macroeconomics and was not significant enough to effect it. However the one who bears the ultimate blame for the Great Depression is the Federal Reserve because they did not prevent money supply reduction and banking panics.
A man named Irving Fisher, an economist, used the idea of the Quantity Theory of Money to create ideas about the causes of the Great Depression. The Quantity Theory of Money states that money supplied has a direct relationship with price level which effects the economic activity level for a short period. Fisher argued that the Federal Government should provide more money to help prevent the deflation of the economy. Debits, stocks, and loans were created by terrible business to help people come out of the depression and were attempts to make a living, but never worked because they were impossible to repay, sell to make a profit, or recover from. The idea of the Liquidationist Theory stated that allowing the Federal Government to introduce more money into the economy to prevent deflation would be completely counterproductive. Those who were in favor of the Liquidationist Theory also argued that allowing more money into the economy would prevent any actual