Question

What were some of the causes of the Great Depression and how did the economic catastrophe create a crisis for democracy?

Answer 1

There were many reasons for the causes of great depression. The first and foremost cause was the reliance upon the theory that economy will correct itself and supply will create its own demand. It caused policy inaction, that converted recession into the great depression. The second cause was the implementation of gold standard that inhibited the expansion of money supply and enough funds to the banks could not be generated to stimulate consumption and investments. As a result, economy could not be supported as it required. The third reason was the stock market crash, causing panic among the investors and it was further aggravated due to cases of banks overrun and panic among the depositors as well. It led to the creation of chaos among people and economy, that created huge level of pessimism in the economy. It contributed to the creation of great depression. The monetary contraction and lack of money in the economy was another reason that could not boost the demand and economy slowly went into the depression.

The economic catastrophe in the name of great depression, resulted into the failure of the institutions whether it was banks, or capital market or institutions who were responsible to run the economy. It created a loss of confidence among people in the elected democratic government that was not doing enough to control the economic problems in the country.  Further, the government was under the false assumption that economy will get corrected itself, but it could not happen. Hence, a crisis for the democracy or elected government created due to lack of positive results, delivered by elected people.