The Great Depression Explained: The Monetarist Position
One of the most enduring questions in economic history, which historians still debate today, is, “what caused the Great Depression?” There are competing schools of thought regarding the Great Depression, and the two major views are the Keynesian theory, based on the views of British economist John Maynard Keynes, and the monetarist view, espoused by Milton Friedman and Anna Schwartz. In this blog post, I want to focus on the monetarist view, which Friedman and Schwartz outlined in their seminal work, A Monetary History of the United States, 1867-1960 , which they published in 1963. In his article, “The Macroeconomics of the Great Depression: A Comparative Approach,” Ben S. Bernanke explains Friedman and Schwartz’s monetarist position as follows: “in their classic study of U.S. monetary history, Friedman and Schwartz (1963) presented a monetarist interpretation of these observations, arguing that the main lines of causation ran from monetary contraction-the result o...