The Great Contraction is the
recessionary period from 1929 until 1933, i.e., the early years of the
Great Depression
The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagion ...
, as characterized by economist
Milton Friedman.
[ The phrase was the title of a chapter in the landmark 1963 book '']A Monetary History of the United States
''A Monetary History of the United States, 1867–1960'' is a book written in 1963 by Nobel Prize–winning economist Milton Friedman and Anna J. Schwartz. It uses historical time series and economic analysis to argue the then-novel proposition ...
'' by Friedman and his fellow monetarist
Monetarism is a school of thought in monetary economics that emphasizes the role of governments in controlling the amount of money in circulation. Monetarist theory asserts that variations in the money supply have major influences on national ...
Anna Schwartz. The chapter was later published as a stand-alone book titled ''The Great Contraction, 1929–1933'' in 1965.[ Both books are still in print from ]Princeton University Press
Princeton University Press is an independent publisher with close connections to Princeton University. Its mission is to disseminate scholarship within academia and society at large.
The press was founded by Whitney Darrow, with the financial su ...
and some editions include as an appendix a speech honoring Nobel-memorial economics prize laureate Friedman in which Fed Governor Ben Bernanke made this statement:
Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression, you're right. We did it. We're very sorry. But thanks to you, we won't do it again.[Ben S. Bernanke (Nov. 8, 2002)]
Federal Reserve Board Speech: "Remarks by Governor Ben S. Bernanke"
Conference to Honor Milton Friedman, University of Chicago
— Ben S. Bernanke
Friedman and Schwartz argued that the Federal Reserve
The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after ...
could have lessened the severity of the Depression, but failed to exercise its role of managing the monetary system
A monetary system is a system by which a government provides money in a country's economy. Modern monetary systems usually consist of the national treasury, the mint, the central banks and commercial banks.
Commodity money system
A commodity ...
and ameliorating banking panics under Fed chairmen Roy A. Young and Eugene Meyer.
The Great Contraction is not to be confused with the Great Compression, which refers to a period beginning around 1940 when (according to some economists such as Paul Krugman
Paul Robin Krugman ( ; born February 28, 1953) is an American economist, who is Distinguished Professor of Economics at the Graduate Center of the City University of New York, and a columnist for ''The New York Times''. In 2008, Krugman was th ...
) economic inequality
There are wide varieties of economic inequality, most notably income inequality measured using the distribution of income (the amount of money people are paid) and wealth inequality measured using the distribution of wealth (the amount of w ...
declined due to progressive tax
A progressive tax is a tax in which the tax rate increases as the taxable amount increases.Sommerfeld, Ray M., Silvia A. Madeo, Kenneth E. Anderson, Betty R. Jackson (1992), ''Concepts of Taxation'', Dryden Press: Fort Worth, TX The term ''progre ...
ation and other policies of the Franklin D. Roosevelt administration.
See also
*Causes of the Great Depression
The causes of the Great Depression in the early 20th century in the United States have been extensively discussed by economists and remain a matter of active debate. They are part of the larger debate about economic crises and recessions. The ...
* Criticism of the Federal Reserve
References
Federal Reserve System
Milton Friedman
Monetary policy of the United States
Great Depression in the United States
Non-fiction books about the Great Depression
Eras of United States history
Presidency of Herbert Hoover
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