John Maynard Keynes believed that the contraction of the money supply after the stock market crash and subsequent bank failures as the causes of the great depression. He notes that this caused deflation that pushed down the collateral value held against debt resulting to further pressure on financial systems, banks and the economy. In this case, people bought goods at prices that were less than those used to produce them.
In resolving this, John Keynes favoured the establishment of money by government borrowing and spending. The US government tax revenues suffered at the beginning of the depression as unemployment rose and income dropped thus creating more need for government as its resources dropped.
