U.S. Economics Holy Grail – The Great Depression

Abstract

What caused the U.S. Great Depression – money contraction or credit instability or banking fragility or price declines or what? Of course, there was no single ‘cause’ to the depression. Human society is not a mechanism. All these factors were contributory factors, which in their interaction changed the economic state of the U.S. society from growth in the 1920s into depression of the 1930s. It was stasis changing events which altered the U.S. society – the 1929 stock market crash and three successive years of bank panics in 1930, 1931, 1932. Central to this stasis change was an unstable financial sub-system, with a ‘fragility of the banks’ and an ‘instability of credit’. This is one of the big questions about economic theory. How are economies inherently stable or unstable? In a cross-disciplinary framework, we analyze the classic U.S. example of an unstable economy -- the Great Depression. Why did the bank panics follow upon the financial bubble of the stock market? How did these panics set the conditions for insignificant economic recovery after 1933? We use a cross-disciplinary analytic framework to examine the multiple factors in explaining, so as not to be limited by a requirement for a ‘single explanation’.