Causes of the Great Depression
In their 1963 book "A Monetary History of the United States, 1867–1960", Milton Friedman and Anna Schwartz laid out their case for a different explanation of the Great Depression. Essentially, the Great Depression, in their view, was caused by the fall of the money supply. Friedman and Schwartz write: "From the cyclical peak in August 1929 to a cyclical trough in March 1933, the stock of money fell by over a third." The result was what Friedman and Schwartz called "The Great Contraction" — a period of falling income, prices, and employment caused by the choking effects of a restricted money supply. Friedman and Schwartz argue that people wanted to hold more money than the Federal Reserve was supplying. As a result, people hoarded money by consuming less. This caused a contraction in employment and production since prices were not flexible enough to immediately fall. The Fed's failure was in not realizing what was happening and not taking corrective action. In a speech honoring Friedman and Schwartz, Ben Bernanke stated:
Causes of the Great Depression
Hans Sennholz argued that most boom and busts that plagued the American economy in 1819–20, 1839–43, 1857–60, 1873–78, 1893–97, and 1920–21, were generated by government creating a boom through easy money and credit, which was soon followed by the inevitable bust. The spectacular crash of 1929 followed five years of reckless credit expansion by the Federal Reserve System under the Coolidge Administration. The passing of the Sixteenth Amendment, the passage of The Federal Reserve Act, rising government deficits, the passage of the Hawley-Smoot Tariff Act, and the Revenue Act of 1932, exacerbated the crisis, prolonging it.