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
The monetary explanation has two weaknesses. First, it is not able to explain why the demand for money was falling more rapidly than the supply during the initial downturn in 1930–31. Second, it is not able to explain why in March 1933 a recovery took place although short term interest rates remained close to zero and the Money supply was still falling. These questions are addressed by modern explanations that build on the monetary explanation of Milton Friedman and Anna Schwartz but add non-monetary explanations.