The Causes of Economic Depressions

There are two main causes for economic depressions “ first, the concentration of wealth, and secondly, blockages in the rolling of money. If capital is concentrated in the hands of a few individuals, most people will loose control over economy and that control would be transferred into the hands of a few wealthy. This disparity results in exploitation of majority of population resulting in a serious explosion. This explosion is known as a depression in the economic world. The concentration of wealth, and particularly the concentration of the value of wealth, is the fundamental cause of a depression.
Secondly, a depression may occur when money that is in the possession of individual stops rolling. Money remains inert or underutilized because some wealthy folks who hoard a lot of wealth think that if the money is allowed to roll freely then their profits will decrease, in fact, their profits really increase when consumer purchasing power of the common people rises due to rolling of money. The very psychology of wealthy individuals who hoard lot a wealth is to make profit from the rolling of money. When these individuals discover that the investment of money does not bring profit up to their expectations, then they stop rolling money. This keeps money immobile or inert; consequently, there is no investment, no production, no income and hence no purchasing power. The situation becomes so dangerous that there are few buyers to buy commodities.
If there is surplus labour and deficit production, the effect of depression is more acute. Hence during a depression, the region having a surplus labor and deficit production would face an indiscriminate closure of business houses and lay-offs. When wages fall, the people in surplus labour areas who used to go to deficit labour areas for employment would face more hardships. This will aggravate the unemployment problem in surplus labour areas. Countries and regions with surplus production and deficit labour usually suffer less hardships during depression.

Taking the above things into consideration, one can understand why US faced the great depression of 1930s due to huge wage disparities and why it is essential to establish a free market enterprise system which would minimize the economic disparity with a minimal government intervention.

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