I know that both Friedman and Bernanke wrote papers (or books, in Friedman's case) about the cause of the Great Depression. How do their points of view compare and contrast?


Bernanke has sort of answered this question himself, in his Remarks On Milton Friedman's Ninetieth Birthday.

Friedman argued that the depression was basically caused by the Fed's contractionary monetary policy, and Bernanke seems to be in broad agreement with him, going so far as to say:

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.

There seems to be some disagreement between the two on the relevance of the non-monetary effects of bank failures. Bernanke argued that

the effective closing down of the banking system might have had an adverse impact by creating impediments to the normal intermediation of credit, as well as by reducing the quantity of transactions media.

Friedman dismissed this, pointing to Canada as an example of a country that had no significant bank failures, but had a depression as severe as the US, due to the fact that their monetary policy was tied to that of the US.

However, Bernanke qualified this disagreement:

my argument for nonmonetary influences of bank failures is simply an embellishment of the Friedman-Schwartz story; it in no way contradicts the basic logic of their analysis.

  • So, wait, both agree that the U.S. inadvertently becoming a net gold positive country (whereas the U.K, the hegemon at the time, became gold negative? That is, that the US became a net gold intaker whereas the UK became a net gold expeller? – Aarthi Oct 13 '11 at 16:04

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