What caused the Great Depression?
Booms and busts are inevitable with capitalism–it is in the nature of the beast. The National Bureau of Economic Research, a nonprofit organization and the official arbiter of the American business cycle, lists 16 downturns between 1854 and 1919. Deflations were commonplace whenever the economy turned down in the 19th and early 20th centuries. Indeed, during the short, sharp depression of 1920-21, prices fell by some 56% from mid-1920 to mid-1921, perhaps the steepest price plunge in U.S. history. The question economists have long grappled with is what transformed a severe recession into the worst depression on record. The controversy has been fierce, fascinating, and illuminating. Among some well-known explanations: John Maynard Keynes blamed a collapse in business confidence and private investment in The General Theory of Interest, Money, and Employment. Milton Friedman and Anna Schwartz scorched an inept Federal Reserve; Peter Temin emphasized a collapse in consumer spending; Josep
