Monday, January 26, 2009

 

Another Strike Against Friedman's Theory of the Depression

This is too technical for the book, but check out the difference in monetary base growth rates during the 1920-1921 depression versus The Great One. If Friedman is right, then it's odd that the 1920s weren't awful. (Incidentally, the Fed hiked rates way up in the beginning of 1920, and kept them there for almost two full years. In contrast, the Fed cut rates down to then-record lows from the stock market crash through late 1931 [.txt]. A slightly different impression from Friedman's summary?)




Comments:
Bob, this is fascinating. Did Friedman-Schwartz acknowledge this earlier, more severe contraction in their book? How did they explain the '20s' boom?
 
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