Theories on the Causes of the Great Depression

Three primary theories aim to explain the causes of the Great Depression: the Keynesian theory, the Monetarist theory, and the Austrian theory. Keynesian theory, developed by John Maynard Keynes, suggests that a lack of demand led to secular stagnation, arguing that massive government intervention is necessary to stimulate the economy. Conversely, the Monetarist theory, articulated by Milton Friedman, posits that a significant drop in the money supply caused the economic downturn, as banks called in loans and reduced liquidity. The Austrian theory emphasizes that easy money policies created an economic bubble that burst, and blames government policies for exacerbating the situation.