Causes of the Great Depression
Second, there are the monetarists, who believe that the Great Depression started as an ordinary recession, but that significant policy mistakes by monetary authorities (especially the Federal Reserve) caused a shrinking of the money supply which greatly exacerbated the economic situation, causing a recession to descend into the Great Depression. Related to this explanation are those who point to debt deflation causing those who borrow to owe ever more in real terms.
Causes of the Great Depression
Economists such as Waddill Catchings, William Trufant Foster, Rexford Tugwell, Adolph Berle (and later John Kenneth Galbraith), popularized a theory that had some influence on Franklin D. Roosevelt. This theory held that the economy produced more goods than consumers could purchase, because the consumers did not have enough income. According to this view, in the 1920s wages had increased at a lower rate than productivity growth, which had been high. Most of the benefit of the increased productivity went into profits, which went into the stock market bubble rather than into consumer purchases. Thus workers did not have enough income to absorb the large amount of capacity that had been added.