The Great Contraction, as characterized by economist

Milton Friedman Milton Friedman (; July 31, 1912 – November 16, 2006) was an American economist and statistician who received the 1976 Nobel Memorial Prize in Economic Sciences for his research on consumption analysis, monetary history and theory and ...

, was the

recessionary period In economics, a recession is a business cycle contraction that occurs when there is a period of broad decline in economic activity. Recessions generally occur when there is a widespread drop in spending (an adverse demand shock). This may be tr ...

from 1929 until 1933, i.e., the early years of the

Great Depression The Great Depression was a severe global economic downturn from 1929 to 1939. The period was characterized by high rates of unemployment and poverty, drastic reductions in industrial production and international trade, and widespread bank and ...

. The phrase was the title of a chapter in the 1963 book '' A Monetary History of the United States'' by Friedman and his fellow

monetarist Monetarism is a school of thought in monetary economics that emphasizes the role of policy-makers in controlling the amount of money in circulation. It gained prominence in the 1970s, but was mostly abandoned as a direct guidance to monetary ...

Anna Schwartz Anna Jacobson Schwartz (pronounced ; November 11, 1915 – June 21, 2012) was an American economist who worked at the National Bureau of Economic Research in New York City and a writer for ''The New York Times''. Paul Krugman has said that Sch ...

. The chapter was later published as a stand-alone book titled ''The Great Contraction, 1929–1933'' in 1965. Both books are still in print from

Princeton University Press Princeton University Press is an independent publisher with close connections to Princeton University. Its mission is to disseminate scholarship within academia and society at large. The press was founded by Whitney Darrow, with the financial ...

, and some editions include as an appendix a speech honoring Friedman in which

Federal Reserve Governor The Board of Governors of the Federal Reserve System, commonly known as the Federal Reserve Board, is the main governing body of the Federal Reserve System. It is charged with overseeing the Federal Reserve Banks and with helping implement the mon ...

Ben Bernanke Ben Shalom Bernanke ( ; born December 13, 1953) is an American economist who served as the 14th chairman of the Federal Reserve from 2006 to 2014. After leaving the Federal Reserve, he was appointed a distinguished fellow at the Brookings Insti ...

made this statement:

Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression, you're right. We did it. We're very sorry. But thanks to you, we won't do it again. Ben S. Bernanke (Nov. 8, 2002)
Federal Reserve Board Speech: "Remarks by Governor Ben S. Bernanke"
Conference to Honor Milton Friedman, University of Chicago
— Ben S. Bernanke

Friedman and Schwartz argued that the

Federal Reserve The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a series of ...

could have lessened the severity of the Depression, but failed to exercise its role of managing the

monetary system A monetary system is a system where a government manages money in a country's economy. Modern monetary systems usually consist of the national treasury, the mint, the central banks and commercial banks. Commodity money system A commodity mon ...

and ameliorating banking panics under Fed chairmen

Roy A. Young Roy Archibald Young (May 17, 1882 – December 31, 1960) was an American banker who served as the 4th chairman of the Federal Reserve from 1927 to 1930. During his tenure as chairman, the Wall Street crash of 1929 occurred, which signaled th ...

and Eugene Meyer. The Great Contraction is not to be confused with the

Great Compression The Great Compression refers to the period of substantial wage compression in the United States that began in the early 1940s. During that time, economic inequality as shown by wealth distribution and income distribution between the rich and poo ...

, which refers to a period beginning around 1940 when (according to some economists such as

Paul Krugman Paul Robin Krugman ( ; born February 28, 1953) is an American New Keynesian economics, New Keynesian economist who is the Distinguished Professor of Economics at the CUNY Graduate Center, Graduate Center of the City University of New York. He ...

) economic inequality declined due to

progressive tax A progressive tax is a tax in which the tax rate increases as the taxable amount increases. The term ''progressive'' refers to the way the tax rate progresses from low to high, with the result that a taxpayer's average tax rate is less than the ...

ation and other policies of the Franklin D. Roosevelt administration.

References

Federal Reserve System Milton Friedman Monetary policy of the United States Great Depression in the United States Non-fiction books about the Great Depression Eras of United States history Presidency of Herbert Hoover {{Econ-book-stub

See also

References