Money in the Great Recession
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Money in the Great Recession

Did a Crash in Money Growth Cause the Global Slump?

Edited by Tim Congdon

No issue is more fundamental in contemporary macroeconomics than the causes of the recent Great Recession. The standard view is that the banks were to blame because they took on too much risk, ‘went bust’ and had to be bailed out by governments. But very few banks actually had losses in excess of their capital. The counter-argument presented in this stimulating new book is that the Great Recession was in fact caused by a collapse in the rate of change of the quantity of money. The book’s argument echoes that on the causes of the Great Depression made by Friedman and Schwartz in their classic book A Monetary History of the United States.
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Chapter 9: How would Keynes have analysed the Great Recession of 2008 and 2009?

Robert Skidelsky


Keynes’s 1936 General Theory was a response to the Great Recession of the early 1930s, which was worse in the USA than in the UK. However, Keynes also discussed the early stages of the Great Recession in his 1930 Treatise on Money, which was much influenced by the Swedish economist, Knut Wicksell. He recommended an extreme form of monetary stimulus, with official purchases of bonds to drive down the long yield. He termed this type of stimulus as ‘monetary policy à outrance’ and it resembles the QE of modern times. In the General Theory Keynes’s emphasis moved towards fiscal policy. However, both books have important lessons in understanding the Great Recession of 2008–09.

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