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 Recession
According to M.S. Eccles, who was appointed chairman of the Federal Reserve by FDR and held that position until 1948, excessive debt levels were not a source cause of the Great Depression. Increasing debt levels were caused by a concentration of wealth during the 1920s, causing the middle and poorer classes, which saw a relative and/or actual decrease in wealth, to go increasingly into debt in an attempt to maintain or improve their living standards. According to Eccles this concentration of wealth was the source cause of the Great Depression. The ever-increasing debt levels eventually became unpayable, and therefore unsustainable, leading to debt defaults and the financial panics of the 1930s. The concentration of wealth in the modern era parallels that of the 1920s and has had similar effects. Some of the causes of wealth concentration in the modern era are lower tax rates for the rich, such as Warren Buffett paying taxes at a lower rate than the people working for him, policies such as propping up the stock market, which benefit the stock owning rich more than the middle or poorer classes who own little or no stock, and bailouts which funnel tax money collected largely from the middle class to bail out large corporations largely owned by the rich.