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The Cause Of Great Depression

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In the World History all major events are interconnected and before analyzing a single event it is important to understand the logical sequence of other supporting events. The purpose of writing this paper is to find out the causes of Great Depression, analyze its effects on the U.S economy and society and present the Keynesian approach for economic recovery.
The roots of Great Depression go back in the times of World War I. On April 4, 1917, the U.S senate voted in favor of the decision of declaring war on Germany. On April 6, the U.S joined its allies; Britain, France and Russia to fight against Austria Hungary, Bulgaria, Germany and the Ottoman Empire. Initially the U.S was trying to stay neutral during the World War I, but the later circumstances …show more content…

The U.S banks assumed that economic boom of 1920s would go on forever. They competed with each other offering higher interest rates for deposits and in order to pay those interests they should earn more revenue from loan payments. Thus, the banks made the loans easy obtainable and started lending money to everyone; individuals, small and big businesses. However, by the end of the decade people were unable to repay their obligations, so the banks went bankrupt and got closed. (Ed. Allison McNeill, 2003)
What was the government doing? It is the first question that comes into mind after analyzing the economic conditions and the effects of Great Depression. Many famous contemporary economists were claiming that the government should do nothing to encourage economic recovery. According to them capitalism would recover itself there was no need for government's intervention. Though the Great Depression proved to be different from former recessions and the economy was showing no signs of recovery. Gradually the capitalism was being replaced by socialism and even capitalists were turning towards Marx's ideas. …show more content…

Keynes believed that the government should support the economy. He argued that the government had all the required measures to manage the spendings. Keynes's analyses of the Great Depression were concentrated on the role of savings. In his book ''The General Theory of Employment, Interest and Money'' Keynes wrote that excessive savings can lead to economic collapse. According to him saving during the hard times was the biggest mistake ever. The government should have invested to create new job places. With increasing income in households the aggregate demand would increase boosting domestic production. Keynes's theories were used in 1930s and 40s and until the 1970s Keynesianism was dominating in the U.S. economics. (Adler,

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