How the Crash of 1929 Caused te Great Depression

How the Crash of 1929 Caused the Great Depression is a groundbreaking analysis using a previously untapped archive of data that expands our understanding of the causes of the Depression and of its protracted nature.

The book reveals that the Great Depression had two major causes. One arose in the business sector and constitutes the core of the traditional explanation of the events of 1929-33 given by economists. A precipitous drop in fixed investment by American businesses did indeed take place. But The Great Deleverage presents a second critical, even predominant cause: the aggregate behavior of consumers in the wake of the Crash. According to analyses conducted by the authors, individual Americans-including large numbers of consumers, business owners and ex-speculators wiped out in the Crash-realized that they were much deeper in debt than was prudent and began repaying that debt as fast as possible.

Using Aggregate U.S. Corporate Balance Sheet statistics for each year of 1929-33 discovered within the archives of a division of the U.S. Treasury Department, the authors show that each year from 1930-33 American consumers repaid their lenders more than the drop in fixed business investment for the year-at least 3.0% more in 1930, 80.0% more in 1931, 80.6% more in 1932, more than 100.0% in 1933. American consumers did this by reducing their personal consumption expenditures-i.e., by tightening their belts. As an expression of the era intoned, they "used it up, fixed it up, made it do, wore it out or went without."

Making copious reference to statistics compiled during 1927-33, as well as estimated later, How the Crash of 1929 Caused the Great Depression demonstrates the direct cause-and-effect linkage not only between the speculation and other debt creation of the 1920s and the Crash, but also between the Crash and the Great Depression-the precipitating causes, and overall causal process of this historic and momentous economic disaster.