Yale and the monetary interpretation of the Great Depression

Abstract

The monetary interpretation of the Great Depression is intimately associated with Friedman and Schwartz. Their analytical core consists of three elements: (a) the documentation of the sharp fall in the money stock; (b) the Federal Reserve's role therein and (c) the monetary mechanism whereby the Federal Reserve could have increased the money supply. This research investigates the monetary interpretation of the Great Depression by Irving Fisher and his two best Yale students, Harry Gunnison Brown, then at Missouri, and James Harvey Rogers, recently returned to Yale from Missouri. Their writings are examined in relation to F&S with the view to identifying whether they anticipated their analytical core. Though there are many parallels between the Yale writings of the thirties and F&S-including discussions of confusion in policymaking and of the importance of Benjamin Strong—I conclude that the Yale thesis was not that of Friedman and Schwartt. Interestingly, each of the three failed to consider one and each a different one of the three principal points of their core: Fisher, the role of the Federal Reserve in causing the decline in money; Brown, the behavior of the money stock; and Rogers, the money supply mechanism.