<P> The debate has three sides: one group says the crash caused the depression by drastically lowering expectations about the future and by removing large sums of investment capital; a second group says the economy was slipping since summer 1929 and the crash ratified it; the third group says that in either scenario the crash could not have caused more than a recession . There was a brief recovery in the market into April 1930, but prices then started falling steadily again from there, not reaching a final bottom until July 1932 . This was the largest long - term U.S. market decline by any measure . To move from a recession in 1930 to a deep depression in 1931--32, entirely different factors had to be in play . </P> <P> Protectionism, such as the American Smoot--Hawley Tariff Act, is often indicated as a cause of the Great Depression, with countries enacting protectionist policies yielding a beggar thy neighbor result . The Smoot--Hawley Tariff Act was especially harmful to agriculture because it caused farmers to default on their loans . This event may have worsened or even caused the ensuing bank runs in the Midwest and West that caused the collapse of the banking system . A petition signed by over 1,000 economists was presented to the U.S. government warning that the Smoot - Hawley Tariff Act would bring disastrous economic repercussions; however, this did not stop the act from being signed into law . </P> <P> Governments around the world took various steps into spending less money on foreign goods such as: "imposing tariffs, import quotas, and exchange controls". These restrictions formed a lot of tension between trade nations, causing a major deduction during the depression . Not all countries enforced the same measures of protectionism . Some countries raised tariffs drastically and enforced severe restrictions on foreign exchange transactions, while other countries condensed "trade and exchange restrictions only marginally": </P> <Ul> <Li> "Countries that remained on the gold standard, keeping currencies fixed, were more likely to restrict foreign trade ." These countries "resorted to protectionist policies to strengthen the balance of payments and limit gold losses ." They hoped that these restrictions and depletions would hold the economic decline . </Li> <Li> Countries that abandoned the gold standard, allowed their currencies to depreciate which caused their Balance of payments to strengthen . It also freed up monetary policy so that central banks could lower interest rates and act as lenders of last resort . They possessed the best policy instruments to fight the Depression and did not need protectionism . </Li> <Li> "The length and depth of a country's economic downturn and the timing and vigor of its recovery is related to how long it remained on the gold standard . Countries abandoning the gold standard relatively early experienced relatively mild recessions and early recoveries . In contrast, countries remaining on the gold standard experienced prolonged slumps ." </Li> </Ul>

Things that lead up to the great depression