Milton Friedman on The Great Depression
The shift in opinion of both the public and the economics profession resulted from a misunderstanding of what had actually happened. We now know, as a few knew then, that the depression was not produced by a failure of private enterprise, but rather by a failure of government in an area in which the government had from the first been assigned responsibility—“To coin money, regulate the Value thereof, and of foreign Coin,” in the words of Section 8, Article 1, of the U.S. Constitution.
Context. From Free to Choose (1980), written with Rose D. Friedman, in the chapter “The Anatomy of Crisis” on the Great Depression. Just before, the authors write that the economic collapse “shattered the long-held belief” that monetary policy was “a potent instrument for promoting economic stability”: opinion shifted “almost to the opposite extreme” that money does not matter, and the Keynesian revolution offered a case for “extensive government intervention.”
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Milton Friedman, “Free to Choose” (1980), Ch. 3 “The Anatomy of Crisis”, p. 71. https://miltonfriedman.org/quotes/depression-not-failure-private-enterprise-failure-government-1980
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He also said
The elementary truth is that the Great Depression was produced by government mismanagement. It was not produced by the failure of private enterprise, it was produced by the failure of government to perform a function which had been assigned to it.
Economic Myths and Public OpinionColumn, 1976, The Alternative: An American Spectator, January 1976; reprinted in Bright Promises, Dismal Performance (Harcourt Brace Jovanovich, 1983), p. 66Checked against the sourceFind the bookThe Federal Reserve system had been established to prevent what actually happened. It was set up to avoid a situation in which you would have to close down banks, in which you would have a banking crisis. And yet, under the Federal Reserve system, you had the worst banking crisis in the history of the United States. There's no other example I can think of, of a government measure which produced so clearly the opposite of the results that were intended.
Context. Asked what actually caused the Great Depression, in a PBS interview for the series Commanding Heights. He had just distinguished the ordinary recession of 1929 from its conversion into a major depression by bad monetary policy.
Commanding Heights: Milton Friedman interviewInterview, 2000, PBS, “The Great Depression,” interview conducted October 1, 2000Checked against the sourceRead the transcriptWhat happened was the Great Depression, which changed people’s views. Before the Great Depression, the general public vision was that the government was a necessary evil and that you should rely on the private market. The Great Depression was wrongly attributed—in my opinion, it was produced by government mismanagement—to a failure of the capitalist system, and public attitudes changed drastically as a result. From regarding the government as a necessary evil the public came to regard the government as the answer to all problems, which set in motion, beginning with FDR’s New Deal, a process under which government has been growing incrementally from then on.
Context. Asked why federal spending stayed small relative to the economy for most of the country’s history, although the institutions and incentives had always been there, and what changed it.
Friedman on the SurplusInterview, 2001, Interview by Peter Robinson for Uncommon Knowledge, January 17, 2001; adapted in Hoover Digest 2001 No. 2Checked against the sourceRead the transcript
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