Hello, see at Reinhardt, Rogoff, 2010 and Metzler A., What Happened to the 'Depression'? „The Wall Street Journal“ from 31.8.2009, http://online.wsj.com/article/ or Prosperity and Depression by Gottfried Haberler.
Great question! Economists still don't agree on the exact cause of The Great Depression but the most economists suggest these 3 main causes: 1) 1929 Stock Market Crash; 2) Loss of confidence; and 3) Policy mistakes by government officials. First, the 1929 crash of the stock market certainly started a sell-off that made the situation worse when 16 million shares of stock were sold in one day. Billions of dollars were sold and thousands of investors lost all their savings. Some people bought stock with borrowed money. The bubble burst, so to speak. Many economists believe this crash sparked a 10 year decline. Second, consumers and business owners lost confidence in the economy and stopped their consumption. They switched from spending to saving. Credit was too easy and people were buying expensive items with credit. Banks were also failing in large numbers, about 600 banks a year. Production fell by more than fifty percent. Third, the Federal Reserve increased the money supply by 60% in the 1920's which pushed interest rates down and made credit too easy. Then, starting in 1929 the Fed sharply lowered the money supply by 30% over the next 3 years, bringing the booming 1920s to a sudden halt. Then came the Smoot-Hawley Tariff Law in 1930 which sharply raised the tariff rate on hundreds of imported goods and started a tariff war and years of protectionism. In 1932, a new tax law doubled the income tax rate for most Americans. These policy moves certainly added to the economic downfall known as The Great Depression.
The causes of the great depression were in a sense the same cyclical variations in major economic variables like international shocks, money supply, business environment and confidence, speculation etc. But the steps taken by the national governments to cure the depression were largely inappropriate which rested on global distrust, tariff resort, shrinking backward, policy-chaos, faltering gold standard etc. for a long period. Depressions were not new to a market capitalist system, even at the time of 1920s-30s. But the way the slump, that occurred at the end of the third decade of the twentieth century, was treated by the global major economies was, I think, what made it a 'great' depression.
There is no consensus and there will never be as this is one of the big questions of our time. This is a discussion related to Keynes general Theory and thus a lot of theoretical and poltical issues. The papers written by von Mises (proposed by de Sousa above) belong to a radically different tradition often used by libertarians today.
If the future is unknown or uncertain, then decisionmakers cannot make rational choices. Instead we will see imitating behaviour. Keynes and Minsky has said this in many places. But it is largely forgotten today.
John K Galbraith, The Great Crash, is a classic book on what happened in the US in 1929 and around that year. If you want to follow up on that, and on a Keynesian tradition you can read Robert Shillers work Irrational exuberance. Another book is The Reinterpretation of American Economic History with several relevant texts.
One has also to keep in minf that even though they were linked, the depression in Europe was not the same as that in the US
While there are many different opinions on the subject and I don't have an exact answer yet I think it would be enlightening for you to research these economists: Silvio Gesell, Bernd Senf, Helmut Creutz, and Margarit Kennedy, as well as others of that vein. Silvio Gesell wrote a book called Establishing a Natural Economic Order Through Free Land and Free Money, and his theory of money and interest was formative for Keynes' theory of money and interest in his General Theory, although I think that Keynes stripped it of its radical implications because Gesell proposed a Market economy free of usurious interest. Gesell's theory of stamped money which depreciated in value over time to regulate the velocity of money and ensure its stable circulation free of hoarding was applied in the town of Worgl Austria in the middle of the Great Depression. As a result the town prospered; there was no inflation, deflation, little to no unemployment, and people were playing taxes in advance. They even built a ski jump. Prof. Iriving Fisher and Keynes were very enthusiastic about Gesell's theory, although he seems to have been forgotten in academia Keynes devotes and entire chapter to him in his General Theory saying "I believe the future will learn more from the spirit of Gesell than that of Marx."