Modern mainstream economists see the reasons in
* Insufficient demand from the private sector and insufficient fiscal spending ([[Keynesians]]).
* A money supply reduction ([[Monetarists]]) and therefore a banking crisis, reduction of credit and bankruptcies.
Insufficient spending, the money supply reduction and debt on margin led to falling prices and further bankruptcies ([[Irving Fisher]]'s debt deflation).
British economist [[John Maynard Keynes]] argued in ''[[The General Theory of Employment, Interest and Money]]'' that lower [[aggregate expenditure]]s in the economy contributed to a massive decline in income and to employment that was well below the average. In such a situation, the economy reached equilibrium at low levels of economic activity and high unemployment.
Keynes's basic idea was simple: to keep people fully employed, governments have to run deficits when the economy is slowing, as the private sector would not invest enough to keep production at the normal level and bring the economy out of recession. Keynesian economists called on governments during times of [[Crisis (economic)|economic crisis]] to pick up the slack by increasing [[government spending]] or cutting taxes.