Causes and Contributing Factors

Factor Explanation Classical Liberal Conservative Keynesian Monetarist Marxist
Stock Market Crash (1929) Sudden market collapse that destroyed paper wealth and damaged confidence Trigger revealing artificial credit expansion fueled by low interest rates; inevitable market correction Symptom of speculative excess and unsustainable boom; highlighted need for prudence Trigger exposing structural weaknesses in aggregate demand and financial fragility Trigger but not primary cause; exposed deeper monetary policy failures and regulatory gaps Symptom of capitalism's inherent contradictions, signaling overproduction and instability
Banking Panics (1930-1933) Widespread bank failures leading to credit contraction and financial system collapse Necessary liquidation of malinvestment from the boom; government should not interfere with market cleansing Crisis of confidence requiring limited stabilization; government role should be temporary and focused on restoring order Critical disruption to economic activity; banks' failure to intermediate credit worsened demand collapse CRITICAL FAILURE - created "Great Contraction" (Friedman); Fed's inaction led to 1/3 reduction in money supply Inevitable result of capitalism's instability and tendency towards financial crises; reflects anarchic nature of production
Federal Reserve Policies (1920s & 1930s) Expansionary policies fueling speculation & contractionary inaction during panics Harmful intervention creating artificial boom by keeping interest rates artificially low, leading to malinvestment Poor judgment enabling speculative excess; Insufficient but limited response needed during panics Minor contributor to boom; Fed policy failures during panics secondary to demand collapse but still significant CRITICAL FAILURE: Expansionary policies contributed to asset bubble; contractionary inaction during panics transformed recession into Depression Tool serving capitalist interests; monetary policy reflects and reinforces capitalist cycles, exacerbating inherent instability
Gold Standard Adherence & Recovery Commitment to fixed exchange rates limiting monetary policy options & hindering recovery Essential monetary discipline; maintaining gold parity was crucial for long-term stability Important stabilizing mechanism under normal conditions but too rigid during crisis; some flexibility needed Harmful constraint on policy (Eichengreen & Temin); prevented expansionary monetary responses needed for recovery Critical transmission mechanism; gold standard rigidity amplified deflationary shocks globally; abandoning gold standard was necessary for recovery System favoring financial capital over workers; gold standard reinforces capitalist dominance in global finance and limits national policy autonomy
Credit Disruption Breakdown in financial intermediation Market adjustment process Contributing factor requiring limited response Significant transmission mechanism Important mechanism beyond monetary effects (Bernanke) Symptom of system's contradictions
Aggregate Demand Collapse Insufficient total spending to maintain production and employment Self-correcting if allowed Cyclical factor requiring limited response CENTRAL PROBLEM requiring government intervention (Keynes) Result of monetary contraction Inherent tendency in capitalism
Income Inequality Concentration of wealth limiting broad-based consumption Natural market outcome reflecting productivity differences Secondary concern Major factor reducing demand (Keynes) Not central to analysis FUNDAMENTAL CONTRADICTION of capitalism
Smoot-Hawley Tariff (1930) Protectionist trade policy that reduced global trade Harmful government intervention Counterproductive policy Secondary factor but exacerbated global problems Contributing factor to international transmission Nationalist competition between capitalist states
Overproduction Excessive production capacity relative to consumption ability Market correction process Natural business cycle fluctuation Symptom of underconsumption Not central to analysis KEY CONTRADICTION of capitalism (Marx)
International Capital Flows Movement of gold and capital between countries transmitting crisis Natural market adjustment Important but difficult to manage Factor requiring international cooperation Critical transmission mechanism Tool of imperialist finance
Psychological Factors Loss of confidence among consumers, businesses, and investors Secondary to structural issues Critical human element Important multiplier effect Reflection of monetary forces Epiphenomenon of material conditions

Policy Responses and Evaluations

Response Explanation Classical Liberal Conservative Keynesian Monetarist Marxist
Fed's Monetary Policy during Depression Federal Reserve actions (or inaction) from 1929-1939 Pre-crash tightening: Necessary to curb speculation. Post-crash inaction & panics: Appropriate non-intervention. 1932 expansion: Harmful intervention. 1937 tightening: Necessary correction. Pre-crash tightening: Poor judgment. Post-crash inaction & panics: Insufficient but limited response. 1932 expansion: Limited support. 1937 tightening: Inadequate but understandable. Pre-crash tightening: Poorly timed. Post-crash inaction & panics: Significant policy failure. 1932 expansion: Positive but insufficient. 1937 tightening: Policy error derailing recovery. Pre-crash tightening: Unnecessarily restrictive. Post-crash inaction & panics: CRITICAL FAILURE. 1932 expansion: Effective but abandoned too soon (Bordo & Sinha). 1937 tightening: Premature tightening reversed gains. Fed policy consistently served capitalist interests, exacerbating crisis through inaction and missteps.
Bank Holiday (1933) Roosevelt's emergency closure of all banks Unnecessary intervention; banks should have been allowed to fail naturally Necessary emergency measure to halt bank runs and restore order; temporary government action justified Essential stabilization; prevented complete collapse of financial system and restored some confidence Important circuit-breaker; necessary to stop banking panics but should have been preceded by earlier action Temporary patch to broken system; superficial fix that did not address root causes of financial instability
Leaving Gold Standard (1933) U.S. departure from fixed gold exchange rate Destructive abandonment of sound money principles; undermined long-term monetary stability and price discovery mechanisms Regrettable but necessary departure from orthodox policy; temporary crisis measure that became permanent shift Essential policy shift enabling monetary sovereignty and domestic economic management; key to recovery Necessary precondition for monetary expansion; enabled escape from deflationary spiral (Eichengreen) Pragmatic adjustment within capitalist framework; shift from one form of monetary control to another
New Deal Relief Programs Direct aid to unemployed and distressed (FERA, CCC, WPA) Counterproductive intervention creating dependency; distorted labor markets and prolonged adjustment Necessary emergency measures but risks of institutional dependency; should remain temporary and limited Good to help people/economy Secondary importance to monetary factors; provided some relief but did not address core monetary problems Minimal concessions to preserve system; palliative measures avoiding structural change
Banking Reforms (Glass-Steagall, FDIC) Separation of commercial/investment banking and deposit insurance Unnecessary intervention in financial markets; created moral hazard and inefficiencies Prudential regulations acceptable for stability; some restrictions on speculation warranted Crucial structural reforms for financial stability; necessary modernization of banking system Useful but secondary to monetary policy; deposit insurance particularly important for stability Surface-level reforms preserving fundamental financial power structures
National Industrial Recovery Act (NIRA) Codes of fair competition and labor standards Harmful cartelization of economy; suppressed market competition and price mechanisms Excessive government intervention in private sector; created inefficiencies and uncertainty Well-intentioned but flawed attempt at industrial coordination; implementation problems undermined effectiveness Counterproductive interference with market adjustment; price and wage controls hampered recovery Corporatist attempt to manage capitalism's contradictions; preserved basic class relations
Labor Reforms (Wagner Act) Unionization rights and collective bargaining Harmful interference with labor markets; artificially increased wages and reduced employment flexibility Excessive empowerment of organized labor; created rigid labor markets and reduced business flexibility Essential rebalancing of labor-capital relations; supported wages and aggregate demand Secondary to monetary issues; labor market interventions not central to recovery Limited concession to working class power; preserved fundamental capital-labor relationship
Social Security Act (1935) Permanent social safety net programs (old-age pensions, unemployment insurance) Unnecessary government intervention; undermined private savings and personal responsibility Acceptable minimal safety net but risks expanding beyond intended scope Essential modernization of economic institutions; provided automatic stabilizers Long-term structural change separate from Depression recovery issues Reform preserving capitalist system; minimal concessions to prevent more radical change
Deficit Spending & Recovery Government expenditure exceeding revenue and its impact on recovery Dangerous departure from fiscal discipline; created long-term structural problems Necessary evil in crisis but risks becoming permanent policy Essential countercyclical tool; government must act as spender of last resort during private sector deleveraging Less important than monetary policy; focus should be on maintaining stable money supply State intervention masking fundamental contradictions; temporary support for failing system
Effective International Policy Responses Successful international policies and their ideological implications International coordination often counterproductive; markets should determine outcomes Limited cooperation acceptable but national sovereignty paramount International coordination essential for managing global economy; preventing beggar-thy-neighbor policies Domestic monetary stability more important than international coordination International coordination reflects power relations between capitalist states
Recession of 1937-38 Economic downturn during New Deal recovery Natural market correction after artificial stimulus; showed limits of intervention Policy errors compounded natural cyclical downturn; showed risks of excessive intervention Premature fiscal and monetary tightening; demonstrated dangers of withdrawing support too early Result of Fed's doubling of reserve requirements; showed continuing monetary policy failures Demonstrated capitalism's inherent instability; reforms couldn't prevent crisis recurrence
Lessons for later crises (2008, COVID-19) Enduring lessons from Depression applied to modern economic shocks Minimize government intervention; allow markets to self-correct Limited, temporary interventions only when absolutely necessary; maintain institutional stability Early, aggressive fiscal intervention crucial; maintain aggregate demand at all costs Maintain stable monetary growth; prevent financial system collapse through liquidity provision Fundamental reform needed; crisis reveals capitalism's inherent instabilities