The Great Contraction is the recessionary period from 1929 until 1933, i.e., the early years of the

Great Depression The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...

, 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 the ...

. The phrase was the title of a chapter in the landmark 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 governments in controlling the amount of money in circulation. Monetarist theory asserts that variations in the money supply have major influences on natio ...

Anna Schwartz. 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 Nobel-memorial economics prize laureate Friedman in which Fed Governor

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 Fed, he was appointed a distinguished fellow at the Brookings Institution. Duri ...

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 of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a ...

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 by which a government provides 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 m ...

and ameliorating banking panics under Fed chairmen Roy A. Young and Eugene Meyer. The Great Contraction is not to be confused with the Great Compression, 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 economist, who is Distinguished Professor of Economics at the Graduate Center of the City University of New York, and a columnist for ''The New York Times''. In 2008, Krugman was t ...

)

economic inequality There are wide varieties of economic inequality, most notably income inequality measured using the distribution of income (the amount of money people are paid) and wealth inequality measured using the distribution of wealth (the amount of ...

declined due to

progressive tax A progressive tax is a tax in which the tax rate increases as the taxable amount increases.Sommerfeld, Ray M., Silvia A. Madeo, Kenneth E. Anderson, Betty R. Jackson (1992), ''Concepts of Taxation'', Dryden Press: Fort Worth, TX The term ''progre ...

ation and other policies of the

Franklin D. Roosevelt administration Franklin Delano Roosevelt (; ; January 30, 1882April 12, 1945), often referred to by his initials FDR, was an American politician and attorney who served as the 32nd president of the United States from 1933 until his death in 1945. As the ...

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