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:
League for Social Reconstruction
The Canadian economy had boomed during the late 1920s and showed no sign of weakness, but during the 1930s the Great Depression swept across Canada and provoked mass unemployment, and this incited the LSR into action. The LSR believed that the roots of the Depression were laissez-faire capitalism and governance, and that the "free" market was anything but. Politicians worked closely with business, securing interest-free loans, developing tariffs, and managing labour disputes; in short: manipulating markets. A small group of political businessmen controlled public policy and economic development, and guided the centralization of finance and power into private hands. Widespread unemployment marked the Depression, and served to underscore financial inequity. In the eyes of the LSR, the problem facing Canada was not an economic depression, it was a corrupt political economy.