Abstract

Monetarists such as Friedman and Schwartz (1963) condemn Federal Reserve policy for being the main cause of the depth and length of the Great Depression. Though such criticism of the quasi-governmental agency may be justified, newly available central bank records reveal that private market stakeholders may be just as responsible for the interwar financial and banking crises as the Fed’s Board of Governors and the Hoover administration. Based on rarely-accessed archives, this paper reveals that prominent and senior members of the America’s banking community advocated for the very policies later condemned by the monetarist school. To the extent that the Fed is to blame for the Great Depression, it must be acknowledged that the bankers actively and aggressively lobbied for and supported the contractionary Fed policies of 1928-33 behind closed doors, in hearings, and in the wider public domain. If certain aspects of interwar crises resulted from “government failure”, our findings introduce new evidence into the literature in that the private markets, and bankers no less, also failed.