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 | | Did Monetary Forces Cause the Great Depression? by Peter Temin ISBN-10: 9780393092097 ISBN-10: 0-393-09209-7 ISBN-13: 9780393092097 ISBN-13: 978-0-393-09209-7 Paperback 1976-06 W. W. Norton & Company Find Lowest Price |
Reviews | ||
Friedman countered Peter Temin's answer to the title of his book is NO. He explains clearly the two main hypotheses concerning the Great Depression. First, the money hypothesis (Friedman & Schwartz), which states that the collapse of the banking system was the primary cause. The fall in consumption and investment were a result of the Depression. Secondly, the spending hypothesis, which states that a fall in consumer spending was the prime cause. The banking crisis was a result of the Depression. The author shows clearly that the banking panic was also caused by high-level fraud. The spending collapse was caused by a fall in income (wages), to a lesser extent by a decline in wealth (the stock market crash) and a fall in consumer sentiment (bad expectations). It influenced negatively the residential construction market and via the textile industry, agriculture (a steep fall in cotton prices). The ultimate result was huge unemployment. The Depression was also aggravated by international events. A steep depression in Europe caused a fall in exports. The Federal reserve did nothing to stem the decline by e.g. an expansionary fiscal policy. On the contrary, it chose to raise interest rates in order to preserve the international value of the dollar during the European currency crisis. Peter Temin's book is an important and extremely balanced econometric study. It could be rather difficult for the layman, although the author thinks otherwise. | ||
Did Monetary Forces Cause the Great Depression ? This book was intended to argue against Friedman's monetary description of the Great Depression. However, it is hard to say that Temin responded to Friedman's main contention properly. For, while Friedman maintained that the Depression could have been alleviated had there been some appropriate actions of the Fed (namely, policies related to monetary expansion), Temin's response was composed of two parts which kill each other's clarity; namely, (A) there was no monetary constraint before September 1931: however, (B) we cannot say whether or not macroeconomic policies which were not used then could have been effective if they were actually used. At the same time, Temin's logic which made him say (A) above is based upon a coarse (and probably wrong) interpretation of Friedman's another article, ''Money and Business Cycles''. Nonetheless, I have to be fair to add that this book is one of good materials to examine Friedman's position from various points of views. | ||