Why Did the Great Depression Happen?

At the height of the Great Depression, the unemployment rate in the United States was over 25% (US Bureau of the Census). Many of the people who did have jobs were reduced to working part-time. It was a terrible time in US history, certainly the worst economic time this country has ever seen. Why did it happen? It's All In the Numbers.

In January of 1930, there were 54.3 billion dollars in circulation in the US economy. By April of 1933, there were only 40.6 billion dollars in circulation (Friedman and Schwartz, "A Monetary History of the United States", pp. 712-714). That's a decline of 25%. The amount of money in circulation in the US declined by 1/4 in a little over 3 years.

If 25% of the world's gold supply suddenly vanished today, what would happen to the remaining gold in the world? It would rise rather dramatically in price. That is what happened to money during the Great Depression, and that is what caused the Great Depression.

From 1930 to 1933, money kept getting more and more valuable. As money kept getting more valuable, people become more and more reluctant to spend their money. Why spend something today that is continually increasing in value? As people continually spent less money, economic activity collapsed, and The Great Depression occurred.