The Causes of the Great Depression : A Comparative Study

Great depression that began in 1929 already been an important topic when we study economics. This collapse was great in magnitude, a 25%-50% drop in total production; was long in duration (about ten years) and was wide in scale, engulfed the whole of the global economy. In another hand, it serves many economic cases to discuss. The great depression brought about fundamental changes in economic institutions, macroeconomic policy, and economic theory.

This article drives to get more information what the great depression caused by compare two articles. The first article is “Great Depression” written by Christina D. Romer on December 20, 2003. And the second one is “The Causes of the Great Depression : A Retrospective” which written by Kenneth Matziorinis in April 2007.

Both articles agree that there is no single cause or obvious set of factors that can explain why the depression occurred. Historians, economist and political scientists have come up with various arguments that place different emphasis on different factors and events. Hence, this essay examines the similarities and differences on the causes of Great Depression between those articles.

Romer believed that great depression as impact of the great war. How the countries financed the war derrived many things drove the great depression. But Matziorinis thought that the great depression caused as impact of declining in USA spending. Then it transmitted to the rest of the world as America was the leader and main pilar economy at the time.

According to Romer, war destroyed the old order of Europian geo-political supremacy and economic hegemony in the world. It created new smaller states and they needed to establish new treasuries, issue new currencies, pay their war debts, build new economies, rebuild their populations and establish new economic relationships with each other. It costed much money that they didn’t have. These causes never discussed by Matziorinis.

For some causes, both of them had the same opinions. What happened in USA economy will give impacts to the rest of the world. Stock market crash, The US Market Bubble, the collapse of the gold standard and failed monetary policy in order to manage stock market crash and also lack of global financial leadership. All of those causes brought the global financial imbalance. Then finally made the great depression occurred.

Since the purposes of this essay is to get more information about the causes of the Great Depression, what we can conclude is both articles agree that the great depression could happened from a multitude of causes. One thing seems clear, that the depression was the result of the interaction of a complex set of factors, some economical, some political and some social. The most obvious impact of the Great Depression was human suffering. In a short period of time world output and standards of living dropped precipitously. As much as on-fourth of the labour force in industrialized countries was unable to find job in the early 1930’s. While conditions began to improve by the mid -1930s, total recovery was not accomplished until the end of the decade.

But the Depression also played a crucial role in the development of macroeconomic policies intended to temper economic downturns and upturns. Many ideas and studies rose in order to serve the solution. The famoust one is what British economist John Maynard Keynes wrote in his General Theory of Employment, Interest and Money (1936). Keynes’s theory already been one of main literature for every country to manage their economic development.