Summary

                In this article there are two different explanations for the cause of The Great Depression. One of which is the monetary theory. This theory states that the problems within the banking system caused the depression. Banks did not have enough money in order to sustain the economy for Americans. In a state of panic people started to withdraw money from the banks which led to a lack of money in circulation. Monetarists were presumptuous when they believed that there was a high demand in investments during the 1930’s. In fact it could have been the other way around and there were not enough people that would put the money into investing, which in turn caused the depression. This theory does a very good job of describing the events that occurred that eventually led to the depression, but it does not give a valid explanation for the full duration of the depression. The other explanation is the demand theory. This theory takes a closer look at the spending patterns pre-depression. Basically, the demands for products lessened significantly which was the base cause of the Great Depression. Since the consumption of products was at a low in the 1920’s the demand for production was also at a low. As a result wages and employment rates plumeted which put the economy further into the depression. In the 1920’s the industries that were supporting the economy and enabling it to prosper were weakening prior to the market crash. The demand theory has explanations for all of the Great Depression, not just the beginning of it.

Analysis

                The two main theories about why the Great depression happened are the monetary theory and the demand theory. The monetary theory has some glitches in it because it really only covers reasons in the 1930’s of the depression. The theory covers the history of the depression quite well but it lacks support for the later years of it. The monetary theory zooms in on 1929 and 1930 with the crash and the banking problems but after that the theory is sort of vague and invalid. The other theory, the demand theory, does a much better job of covering the entire depression. It gives valid reasons as to why the economic state got so bad so quickly and kept spiraling out of control in a negative direction. Both theories have their flaws, but together they give a good idea as to why the economy hit an all time low from 1929-1941.

Question

In your opinion which theory is better? Why?

Citation

"Great Depression: Causes: What Caused the Great Depression?" History in Dispute. Ed. Robert J. Allison. Vol. 3: American Social and Political Movements, 1900-1945: Pursuit of Progress. Detroit: St. James Press, 2000. 54-61. Gale Virtual Reference Library. Web. 1 Mar. 2012.