Ideology and the Great Depression: Monetary History Rewritten

Abstract

In 1963 Milton Friedman and Anna Schwartz published A Monetary History of the United States.' book is apparently a massive, empirically based interpretation of the relationship among various components of the money supply, the total quantity of money, and the level of economic activity. It has also become the empirical basis for a monetarist revision of the history of the Great Depression of the 1930s.2 monetarist view is that the Great Depression was not a result of basic flaws in American capitalism but was rather the result of incompetent monetary policy. monetarist-revisionists argue that far from showing the need for active counter-cyclical monetary and fiscal policy, the years 1929-33 show how destablizing a government agency can be. They then go on to argue that what the years 1929-33 actually show is that in the absence of such agencies and their allegedly inevitable incompetence, unfettered capitalism is capable of sustained and uninterrupted increases in output. They further argue that much of what has happened over the last fifty years has been a consequence of an erroneous interpretation of 1929-33. As Karl Brunner has put it, The view of a radically unstable economic process perennially on the edge of serious collapse gained wide popularity and became a central element of the Keynesian