The Park Place Economist


This paper argues that mismanagement of the money supply substantially contributed to the economic disaster of The Great Depression. Indeed, from 1929 to the cyclical trough in 1933, the Federal Reserve allowed the money stock to fall by 33% while one-fifth of commercial banks closed and real money income fell 36%. These numbers seem staggering when one considers that the Fed performed few open market operations and even raised the discount rate in 1931 from 1.5% to 3.5%.