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 10: Why Friedman and Schwartz’s interpretation of the Great Depression still matters: reassessing the thesis of their 1963 Monetary History

David Laidler


The early stages of the Great Recession of 2008–09 had many similarities to the early stages of the USA’s Great Depression of the early 1930s. Despite criticism of Milton Friedman in Paul Krugman’s column in the New York Times, Friedman and Schwartz’s 1963 Monetary History of the United States continues to have important lessons for the conduct of monetary policy today. Indeed, large-scale asset purchases by the Fed – as recommended by Friedman and Schwartz in their 1963 book as an anti-depression antidote – stopped the Great Recession from developing into something much worse. On a large enough scale, increases in the monetary base ought to be accompanied by positive growth of the quantity of money sufficient to counter demand weakness.

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