Question

4. Find a web site that discusses the Friedman view of the Great Depression, provide the link and briefly describe what it says.                                                                          15 points

Answer 1

Milton Friedman demonstrated that the Great Depression was not a market disappointment and that Friedman made an exceptionally solid contention against interventionism.

1. Milton Friedman saw the 1920s as years of crucial and maintainable development in the economy. Amid this period the Federal Reserve quite extended the cash supply. This development was not reflected in an expansion in the normal cost level, on the grounds that money related powers were killed by simultaneous increments in profitability.
2. What began, in his view, as a typical trade cycle phase, became the Great Depression after a series of bad decisions by the Federal Reserve.
3. According to Friedman, the sum of all those mistakes led to the collapse of the money supply by one third. The most important function of the Federal Reserve is to keep the level of money supply slightly growing.
4. What should the Federal Reserve have done? Milton Friedman does not delay to give the appropriate response: keep the cash supply developing.
5. The Fed ought to have purchased government securities with cash made out of nowhere. Also, it ought to have begun a program of "suspension of installments."
6. Friedman claims that the Fed should have prevented people from withdrawing their money simply by "suspension of payments," instituting a "banking holiday," and by printing more money so that banks could have more reserves upon which they could still keep the money supply growing. This is nothing short of theft on a mass scale.
7. He says that the depression was caused not by the market, but by government's failure to intervene, failure to monetize the debt, failure to print the money, and failure to forbid bank runs.
8. Thus a "market," as a social institution, is not responsible for a great economic collapse, but the government is. The contention is that the government failed to intervene.
9. This is not a pro-market argument. In fact, any kind of a government intervention and statist delusion can be camouflaged in this way and efficiently sold to the public and intellectuals.
10. All criticisms of the market, or demonstrations of "market failures" can be transformed into a "government failures" by blaming the government for not introducing policies aimed at private property.