With hindsight, it is easy to see the conditions that led to the Great Depression and, consequently, how it might have been prevented. Of course, most people at the time were caught by surprise. There were a few economists who warned about the upcoming troubles, but most were ignored or dismissed.

The major event that led to the Great Depression was the stock market crash of 1929. When the market crashed, many people who invested their entire savings in the market lost everything. Many were borrowing money to invest on speculation. If the Federal Reserve had reduced the monetary supply, fewer people would have been able to buy on margin, and stock prices would not have been so inflated.

Another cause of the Great Depression was the failure of many banks. Today, savings accounts are federally insured up to a certain value. If that had been in place at the time of the Great Depression, fewer people would have lost their entire savings.

Could the U.S. government have prevented the Great Depression?

Hindsight is always twenty-twenty. It is easy for historians to criticize decisions made by the government after the fact, but not nearly as easy to predict how government policy will affect the economy in the present. The Monday morning quarterbacks of the history books will suggest that the government could have limited speculative trading, or that adjusting the interest rate would have fixed underlying economic problems of the 1920's. The fact of the matter is that the government did not deliberately drive the economy into the ground. The leaders of the day simply felt that government oversight of the economy would be harmful to growth. It should be remembered that on the surface, the economy appeared to be performing exceptionally well. In short, the government can not fix a problem if the problem does not reveal itself.

A major reason that the American economy collapsed in the late 1920's is because of the worldwide economic depression that had its roots in the destruction of World War I. Obviously, there was nothing that the government of the United States could have done to change that.