What caused the Depression of 1893, and why did conservative or liberal policies cause it?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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Most historians say that the Depression of 1893 started because the American economy had experienced something of a bubble.  In the years leading up to 1893, the economy had expanded rapidly.  As is often the case during bubbles, companies had expanded more than was perhaps wise.  This was, arguably, due in part to what you could call liberal policies.  The government had passed laws requiring that silver be purchased and made into currency.  This increased the money supply, making it easier for companies to borrow money to expand.  This excessive expansion meant that the economy was in danger of a crash.

In 1893, the crash occurred.  It was set off somewhat randomly, as investors started to worry that the economy was not as strong as it seemed.  When this happened, there was a run on the stock market and on banks.  Banks had much less money to loan out and companies started to fail.  Consumer and business confidence plummeted.  This caused the depression to get worse.

It is hard to say that either liberal or conservative policies caused the depression.  We must remember that all government was, in those days, much more economically conservative than government today.  The main “liberal” policy that helped bring about the depression, the coinage of silver, is not something that fits into our liberal-conservative splits today.  However, we can argue that an easy monetary policy is more liberal than conservative and, therefore, we can say that liberal policies were in part responsible for the depression.

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