What caused the crash of 1929?
The Keynesians claim the main reason was a fall in autonomous spending, especially in investment. It is certainly true that private investment collapsed by 90% between 1929 and 1933; construction dropped by 85% and production of capital goods by 75%. But why? The reason seems to be that most profitable opportunities provided by the new industries and new markets in the 1920s had dried up by the end of the decade. In other words the boom was coming to an end anyway. Boom and bust are normal features of capitalist development. The monetarists like Milton Friedman put the blame on the fall in the money supply caused by the wholesale banking collapse. By 1933 9,000 banks had closed their doors in the USA for ever. The three main waves of bank failures were in 1930, 1931 and 1933. Clearly these occurred too late to cause the collapse, though they could have made it worse. Financial chaos interacted with the collapse in production to drag the economy down further. Kindleberger is correct whe
