It's the roaring 20s in America.

An age of miracles, an age of art, an age of excess.

But no more.

Now the 30s have begun, and there is a new word, depression.

What caused the Great Depression? And could it happen again? It's one of the great puzzles of economics and one of the most important questions in history.

It's important because depending on what you think caused the Great Depression, you might

structure an entire economic policy around avoiding such a situation again.

And indeed, that's precisely what has happened over the course of American history.

In the desire to prevent another Great Depression, our government has grown in unprecedented

ways, ironically, setting the stage for a great stagnation still to come.

There are essentially three main theories as to what caused the Great Depression.

The Keynesian theory, the Montes Monasterous Theory, and the Austrian theory.

John Maynard Keynes, born in 1883, is perhaps the most influential economist in modern history.

His book, The General Theory of Employment, Interest and Money, is a nearly unreadable tone with a seductive central thesis,

that a free market economy, left to its its own devices does not create full employment,

but that by increasing demand in the marketplace via government pumping, full employment can

indeed be achieved. According to Keynes, the problem of the Great Depression was secular

stagnation. People apparently stopped wanting to buy things. Normally, the idea is that if

consumption falls, savings rise. When savings

rise, interest rates go down as banks need to pay people less for storing their money. When

interest rates go down, borrowing increases, investment and innovation are thus renewed. This theory,

supply-side economics, was rejected by Keynes. Cains argued that if business is expected demand to level

...