The great contraction, 1929-1933 - with a new preface by Anna Jacobson Schwartz and a new introduction

283 Pages·2008·1.7 MB·English

by  Milton Friedman

The Great Contraction
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The Great Contraction
1929–1933
With a New Preface by Anna Jacobson Schwartz and
a New Introduction by Peter L. Bernstein
Milton Friedman and Anna Jacobson Schwartz
A Study by the National Bureau of Economic Research, New York
p r i n c e t o n u n i v e r s i t y p r e s s
p r i n c e t o n a n d o x f o r d
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“New Preface” and “Introduction: The Great Contraction,
Seen from the Perspective of 2007” copyright © 2009
by Princeton University Press
“The Great Contraction, 1929–1933” copyright © 1963, 1965 by the National
Bureau of Economic Research
Requests for permission to reproduce material from this work should be sent
to Permissions, Princeton University Press
Published by Princeton University Press, 41 William Street, Princeton,
New Jersey 08540
In the United Kingdom: Princeton University Press, 6 Oxford Street,
Woodstock, Oxfordshire OX20 1TW
All Rights Reserved
ISBN-13 (pbk.): 978–0–691–13794–0
Library of Congress Cataloging-in-Publication Data
Friedman, Milton, 1912-2006.
The great contraction / with a new preface by Anna Jacobson Schwartz
and a new introduction by Peter L. Bernstein ; [by] Milton Friedman
and Anna Jacobson Schwartz.
p. cm.— (Princeton classic edition)
“A study by the National Bureau of Economic Research.”
Includes bibliographical references and indexes.
ISBN 978-0-691-13794-0 (pbk. : alk. paper) 1. Money—United States—
History. 2. Currency question—United States—History. 3. Monetary
policy—United States—History. I. Schwartz, Anna Jacobson. II. National
Bureau of Economic Research. III. Title.
HG538.F858 2009
332.4(cid:1)973--dc22 2008007509
British Library Cataloging-in-Publication Data is available
This book has been composed in New Baskerville Typeface
Printed on acid-free paper. ∞
press.princeton.edu
Printed in the United States of America
1 3 5 7 9 10 8 6 4 2
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NATIONAL BUREAU OF ECONOMIC RESEARCH
FEBRUARY 27, 1980
offi cers
Arthur F. Burns, Honorary Chairman
James J. O’Leary. Chairman
Eli Shapiro, Vice Chairman
Martin S. Feldstein, President
Charles E. McLure, Jr., Vice President
Charles A. Walworth, Treasurer
Sam Parker, Director of Finance and Administration
directors at large
Moses Abramovitz Geoffrey H. Moore
Arthur F. Burns Michael H. Moskow
George T. Conklin, Jr. James J. O’Leary
Morton Ehrlich Peter G. Peterson
Solomon Fabricant Robert V. Roosa
Martin S. Feldstein Richard N. Rosett
Edward L. Ginzton Bert Seidman
David L. Grove Eli Shapiro
Walter W. Heller Stephen Stamas
Walter E. Hoadley Lazare Teper
Roy E. Moor Donald S. Wasserman
directors by university appointment
Gardner Ackley, Michigan James L. Pierce. California, Berkeley
George Leland Bach, Stanford Lloyd G, Reynolds, Yale
Charles H. Berry, Princeton Robert M. Solow, Massachusetts
Otto Eckstein, Harvard Institute of Technology
Walter D. Fisher, Northwestern Robert R. Sterling, Rice
John H. Kareken, Minnesota Henri Theil, Chicago
J. C. LaForce, California, Los Angeles William S. Vickrey, Columbia
Almarin Phillips, Pennsylvania Burton A. Weisbrod, Wisconsin
directors by appointment of other organizations
Eugene A. Birnbaurn, American Management Associations
Carl F. Christ, American Economic Association
Stephan F. Kaliski, Canadian Economics Association
Franklin A. Lindsay, Committee for Economic Development
Albert G. Matamoros, National Association of Business Economists
Paul W. McCracken, American Statistical Association
Douglass C. North, Economic History Association
Rudolph A. Oswald, American Federation of Labor
and Congress of Industrial Organizations
G. Edward Schuh, American Agricultural Economics Association
James C. Van Horne, American Finance Association
Charles A. Walworth, American Institute of Certifi ed Public Accountants
directors emeriti
Emilio G. Collado George B. Roberts
Frank Fetter Murray Shields
Thomas D. Flynn Boris Shishkin
Gottfried Haberler Willard L. Thorp
Albert J. Hettinger, Jr. Theodore O. Yntema
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RELATION OF THE DIRECTORS
TO THE WORK AND PUBLICATIONS
OF THE NATIONAL BUREAU OF ECONOMIC RESEARCH
1. The object of the National Bureau of Economic Research is to ascertain and to pre-
sent to the public important economic facts and their interpretation in a scientifi c and im-
partial manner. The Board of Directors is charged with the responsibility of ensuring that
the work of the National Bureau is carried on in strict conformity with this object.
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to its Executive Committee, for their formal adoption, all specifi c proposals concerning
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The names of the special manuscript committee shall be stated to each Director when the
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unless at least a majority of the entire Board and a two-thirds majority of those members
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6. No manuscript may be published, though approved by each member of the special
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(Resolution adopted October 25, 1926,
as revised February 6, 1933, and February 24, 1941)
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CONTENTS
New Preface by Anna Jacobson Schwartz
ix
Introduction: The Great Contraction, Seen from
the Perspective of 2007 by Peter L. Bernstein
xiii
The Great Contraction, 1929–1933 by Milton Friedman
and Anna Jacobson Schwartz
1
Remarks by Ben S. Bernanke
227
Author Index
251
Subject Index
000
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NEW PREFACE
by Anna Jacobson Schwartz
This preface is a second occasion for this coauthor to
refl ect on the project that resulted in the publication of
A Monetary History, from which this book is excerpted.
The present task is tinged with sadness. Milton Friedman
died on November 16, 2006, before he could share in the
writing.
At least three times in the last century economists
changed their minds on the way to think about the mac-
roeconomy—the study of the economy as a whole. The
fi rst time was the revolutionary change in 1936 inspired
by John Maynard Keynes’s General Theory of Employment,
Interest, and Money, which interpreted the Great Depres-
sion of the 1930s as a failure of the competitive market
system and proof of the impotence of monetary policy.
He advocated, instead, aggregate demand management
by government fi scal policy. His ideas captivated econo-
mists for decades afterward.
A counterrevolution was initiated by the reinterpreta-
tion of the Great Contraction of 1929–33 in chapter 7 of
A Monetary History. The evidence presented there was that
the Federal Reserve System, by failing to act as a lender of
last resort during a series of banking panics, permitted a
massive contraction of the money supply that was respon-
sible for the compression of aggregate demand, national
income, and employment. Markets did not destabilize the
ix
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