The Great Contraction 1929-1933

by Milton Friedman, Anna J. Schwartz

The description for this book, The Great Contraction, 1929-1933, will be forthcoming.

Genres: Economics, History, Nonfiction, Philosophy, Business

150 pages, paper

First published June 1, 1964

About the author

Milton Friedman was an American economist who became one of the most influential and controversial figures of the twentieth century, widely recognized for his profound contributions to monetary economics, consumption theory, and the defense of classical liberalism. A leading figure of the Chicago School of Economics, Friedman challenged the prevailing Keynesian consensus that dominated mid-century policy and instead placed monetary policy at the center of economic stability, arguing that changes in the money supply were the primary drivers of inflation and fluctuations in output. His groundbreaking permanent income hypothesis reshaped the study of consumer behavior by suggesting that individuals make spending decisions based on long-term expected income rather than current earnings, a theory that profoundly influenced both academic research and practical policymaking. Alongside Anna Schwartz, Friedman coauthored A Monetary History of the United States, 1867–1960, a monumental work that emphasized the role of Federal Reserve mismanagement in deepening the Great Depression, a thesis that redefined historical understanding of the period and helped establish monetarism as a major school of thought. His broader philosophy was articulated in works such as Capitalism and Freedom, where he argued that political and economic liberty are interdependent and advanced ideas like educational vouchers, voluntary military service, deregulation, floating exchange rates, and the negative income tax, each reflecting his conviction that society functions best when individuals are free to choose. Together with his wife Rose Friedman, he later brought these ideas to a global audience through the bestselling book and television series Free to Choose, which made complex economic principles accessible to millions and expanded his influence beyond academia. Awarded the Nobel Prize in Economic Sciences in 1976 for his achievements in consumption analysis, monetary history, and stabilization policy, Friedman became a prominent public intellectual, sought after by policymakers and leaders around the world. His ideas strongly influenced U.S. policy in the late twentieth century, particularly during the administration of Ronald Reagan, and found resonance in the economic reforms of Margaret Thatcher in the United Kingdom, both of whom embraced aspects of his prescriptions for free markets and limited government intervention. Friedman’s policy recommendations consistently opposed measures he regarded as distortions of market efficiency, including rent control, agricultural subsidies, and occupational licensing, while he proposed alternatives such as direct cash transfers through a negative income tax to replace complex welfare bureaucracies. His teaching career at the University of Chicago shaped generations of economists, many of whom extended his research and helped institutionalize the Chicago School as a major force in global economic thought, while his later role at the Hoover Institution at Stanford University provided him with a platform to continue his scholarship and public advocacy. Beyond technical economics, Friedman’s clarity of expression and ability to frame debates in terms of individual freedom versus state control made him one of the most recognizable intellectuals of his era, admired by supporters for his defense of personal liberty and market efficiency, and criticized by detractors who accused him of underestimating inequality, social costs, and the complexities of government responsibility. Despite the controversies, his impact on the development of modern economics was immense, reshaping debates about inflation, unemployment, fiscal policy, and the role of the central bank. His writings, lectures, and media appearances consistently reinforced his belief that competitive markets, voluntary exchange, and limited government intervention offer the most effective means of promoting prosperit

Reviews

[Henry · Rating 5 out of 5]

- A rather good refreshment on the monetary contraction during the last great depression (as of I'm writing this right now, the money supply of the US is now declining for more than 6 straight months now. Not seen since the great depression)

- Among many lessons, one is that the regulators always have tendency to avoid their last big mistake. Thus when overly expansionary (inflation), they contract too much; when overly contract, they expand too much

- Unintended consequences of policies makes things worse not better: bank holidays increases panic and at the end increase the amount of bank failures

- Money velocity increase during expansionary period and decline during contraction

[Tadas Talaikis · Rating 1 out of 5]

Well, this is complete nonsense, because in reality, markets and humans aren't rational, so this neoliberal agenda can only create more crises from often largely unknown (well, greed is creative) sources. Sadly, Friedmans live in an illusion and can only create economic comedy.

[Marius Ghincea]

This is a classical book of the monetarist school of economics. It is a historical study of the Great Depression (contraction) which provided, at the time when it was published, a new account of the causal determinants of the depression. Recessions are cyclical and even can be conceived as being good for the economy, as it cleans the waste and inefficiencies in the economy. Friedman and his co-author argue that 1929 financial crisis exacerbated into a depression because and only because of the wrong monetary policies of the Federal Reserve. Because of the collapse of 1/3 of the US financial system, with over 8000 banks closing between 1929 and 1933, the supply of money in the market decreased by 1/3. The decision of the FED not to increase the supply of money on the market is, in Friedman et al opinion, the reason for the depression. This is a heterodox perspective that is unicausal and a bit dogmatic, IMHO.

[Frederick Hammill · Rating 1 out of 5]

Slow burn for a whole lot of nothing

[Will E Hazell · Rating 5 out of 5]

Incredible discernment of data, with unparalleled analysis.

[Billy · Rating 3 out of 5]

An extended chapter from Milton Friedman/Anna J. Schwartz collaboration A Monetary History of the United States, 1867-1960, this work argues for monetary policy’s primacy in influencing the Great Depression. Monetary policy stresses the importance of controlling the supply of money in the economy. This is the primary function of the Federal Reserve System, or the “Fed.” Friedman and Schwartz reveal their thoughts on how the severity of this downswing could have been avoided. The Great Depression, while harmful to the economy and the America as a whole, could have been greatly shortened with proper management of monetary policy. If the Fed had injected banks with an ample supply of money, they could control inflation, influence levels of employment, and perhaps shorten this severe economic downturn. As the authors state, “it is hardly conceivable that money income could have declined by over one-half and prices by over one-third…if there had been no decline in the stock of money.” (301) There has yet to be a consensus as to which approach—either monetary or fiscal—is the proper one for managing national economies. Keynes’General Theory provided the paradigm shift to which brain trusters adhered. No longer was an economy to be left to its own devices. Milton Friedman may contest fiscal policy in the hopes of letting the market do what it will, there is still a level of management involved. Because of Keynes, we no longer adhere to sentiments of a self-regulating market; nor Say’s contentions that supply will create its own demand.

[Martin · Rating 2 out of 5]

I understand that this is a seminal work of economic history, and that it just one part of a greater whole, but I did not find it very enjoyable. I just don't have the fund of knowledge necessary to follow along. I needed to know more about securities, bonds, bills, stocks, the gold standard, and local banking systems. I did learn quite a bit about those things, however, and understand the financial aspect of the Great Depression much better now. But I think maybe I should have read Charles Kindleberger's book instead. I always found him engaging. The most enjoyable aspect of this book, however, were the forward and epilogue by Ben Bernanke. I now feel that he is highly qualified to help us get out of our current economic mess, as his is a scholar of the previous ones.

[Davina · Rating 3 out of 5]

I was pleased to see that Milton Friedman was not as doctrinaire as some that have followed him. I particularly appreciate many of his arguments in favor of Fed intervention. The follow on piece by Ben Bernanke was good to clarify, or reinforce, arguments made in this book. I know his focus was on Monetary policy, but I missed something about the conditions which might have contributed to many of the phenomenon he wrote about. It seems to be things like bank failures were as much about overall economic conditions as they were about poor policy choices. Interesting, but dry, and filled with jargon.

[Rommel Harlequin Monet · Rating 3 out of 5]

Pretty boring but decent. Rothbard came up with opposite observations in America's Great Depression.

Also, Friedman was a little-person, and according to Carson-Newman University research papers from 1993, little-people are 227% more likely to lie on their resume than regular sized people.

On the other hand, he was Jewish, and per chatGPT, research papers from a leaked 1979 Salomon Brothers HR study shows that Jewish people are a whopping 694% less gullible than Gentiles.

[Jason · Rating 3 out of 5]

Very technical, but an interesting read.