Fear as a Human Cause for the Great Depression and Eventual Recovery

Jonathan Richie
5 min readApr 23, 2021


The Great Depression has been the subject of more literature and the topic of more debate than potentially any other moment in America’s economic history. Indeed, as economist Ben Bernanke explained, “To understand the Great Depression is the Holy Grail of macroeconomics.”[i] The comparison is undeniably apt because, just like the legendary Grail, out of, “those who went upon the Holy Quest, that most of them would follow wandering fires, lost in the quagmire.”[ii] Many competing theories vie for supremacy in explaining the proximate causes which led to the economic downturn in the first place, and then even more exist for why America eventually recovered from it. However, the most persuasive answer is that the people’s fear in the monetary situations both in America and Europe was the ultimate cause of both the crash and recovery.

Such a simple and human answer might strike economic historians as odd, or even outrageous, considering it does not require long hypothetical equations to postulate simulations of various potentialities resulting from vacillating fiscal and monetary policies. But often times it is forgotten that economics is nothing more than people acting through the medium of their labor and money. In fact, speaking specifically about interpretations of the Great Depression, “much of this literature has a rather mechanical quality and does little to illuminate the…historical process.”[iii] At its base, the economy is just one way of looking at humanity. Therefore, no surprise ought to be garnered when the best economic answers are simultaneously the most human in their origin. In both the Great Depression and the eventual rebound at the end of the 1930s fear itself was the distal human cause which translated into various proximate economic reasons.

Unemployment Lines in California

For example, the overvaluation of the stock market created a precarious bubble which required little public anxiety to burst. According to Eugene Wright, fear led to 1929 stock market crash because, “When prompt reporting of prices became impossible, investors lost track of their position. Panic selling began on Black Thursday and Black Tuesday.”[iv] While this readjustment of the stock market led to an unquestionable dip in the economy it was by no means without parallel. But the fear-fueled panic in one area led to enough uncertainty to cause the credit lending agencies to greatly restrict loans which, “helped convert the severe but not unprecedented downturn of 1929–30 into a protracted depression.”[v]

Such conditions in turn precipitated massive runs on banks. Bernanke concluded that the uncertainty and economic anxiety on account of events such as Great Britain ditching the gold standard, the collapse of financial institutions in Europe, and the exposing of various business scandals in America shows that, “nonmonetary aspects of the financial crisis were at least part of the propagatory mechanism of the Great Depression.”[vi] The rapid crash of the stock market combined with the latent fears of further economic disaster led to the devastating bank runs. By, “1931, the expectations that the international financial system would collapse became self-fulfilling.”[vii] Through all of this, fear was the primary motivating factor behind the actions taken by the various stakeholders. Even Calvin Coolidge lamented that, “In other periods of depression, it has always been possible to see some things which were solid and upon which you could base hope, but as I look about, I now see nothing.”[viii]

Similarly, the recovery from the Depression was at least in part due to rising fears — this time on the other side of the Atlantic. As despotic and tyrannical rulers such as Benito Mussolini and Adolf Hitler rose to power, a dark and tragically familiar shadow of impending war was cast across Europe. This led to substantial amounts of gold, investments, and other forms of capital being moved to America who was, at least in comparison, more stable than the Old World. Cristina Romer succinctly relates that, “The increase in the money supply [in America] was primarily due to a gold inflow, which was in turn due to devaluation in 1933 and to capital flight from Europe because of political instability after 1934.”[ix] This influx of money took some of the strain off of the beleaguered financial institutions of America and allowed, once again, for the economy to start climbing back to its pre-Depression days. Romer goes further, however, and even suggests than the monetary developments of European gold and capital were among the primary reasons for American recovery while the government’s, “Fiscal policy, in contrast, contributed almost nothing.”[x]

Although the road from the crash to recovery was long, and not always straight, the underlying distal cause for both was a fear in the uncertainty of the market place which triggered a chain reaction of economic implosions. Likewise, America’s comparative, though tenuous, security compared to that of Europe in the latter half of the 1930s gave people more security for their investments without the worry of a Nazi, Fascist, or Communistic government confiscating their capital. Thucydides relates, “fear was our first motive; afterwards ambition, and then interest stepped in.”[xi] Thus is the case in understanding the Great Depression and subsequent recovery where, behind the multifaceted economic apparatus, we see very human fears and concerns driving the decisions of people and institutions.

Squatter’s Camp

[i] Ben Bernanke, “The Macroeconomics of the Great Depression: A Comparative Approach,” Journal of Money, Credit and Banking Vol. 27, №1 (February 1995): 1.

[ii] Alfred Tennyson, “The Holy Grail,” Idylls of the King (London: MacMillan and Co., 1908), 313.

[iii] Robert Higgs, “Crisis, Bigger Government, and Ideological Change: Two Hypotheses on the Ratchet Phenomenon,” Explorations in Economic History Vol. 22, №1–28 (1985): 2.

[iv] Eugene White, “The Stock Market Boom and Crash of 1929 Revisited,” The Journal of Economic Perspectives Vol. 4, №2 (Spring 1990): 81.

[v] Ben Bernanke, “Nonmonetary Effects of the Financial Crisis in the Propagation of the Great Depression,” The American Economic Review Vol. 72, №3 (June 1983): 257.

[vi] Ibid., 272.

[vii] Ibid., 274.

[viii] Quoted in, Robert Gilbert, The Tormented President: Calvin Coolidge, Death, and Clinical Depression (Westport: Praeger Publishers, 2003), 233.

[ix] Christina Romer, “What Ended the Great Depression?” The Journal of Economic History Vol. 52, №4 (December 1992): 759.

[x] Ibid., 781.

[xi] Benjamin Jowett, Thucydides Translated into English (Oxford: Clarendon Press, 1881), 1.48.



Jonathan Richie