The Great Contraction, 1929-1933: New Edition

by Anna J. Schwartz, Peter L. Bernstein (Introduction)

Friedman and Schwartz's "A Monetary History of the United States, 1867-1960," published in 1963, stands as one of the most influential economics books of the twentieth century. A landmark achievement, the book marshaled massive historical data and sharp analytics to support the claim that monetary policy--steady control of the money supply--matters profoundly in the management of the nation's economy, especially in navigating serious economic fluctuations. The chapter entitled "The Great Contraction, 1929-33" addressed the central economic event of the century, the Great Depression. Published as a stand-alone paperback in 1965, "The Great Contraction, 1929-1933" argued that the Federal Reserve could have stemmed the severity of the Depression, but failed to exercise its role of managing the monetary system and ameliorating banking panics. The book served as a clarion call to the monetarist school of thought by emphasizing the importance of the money supply in the functioning of the economy--a concept that has come to inform the actions of central banks worldwide.

This edition of the original text includes a new preface by Anna Jacobson Schwartz, as well as a new introduction by the economist Peter Bernstein. It also reprints comments from the current Federal Reserve chairman, Ben Bernanke, originally made on the occasion of Milton Friedman's 90th birthday, on the enduring influence of Friedman and Schwartz's work and vision.

Genres: Economics, History, Nonfiction, Philosophy, Business

320 pages, Kindle Edition

First published June 1, 1964

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.