Money, Bank Credit, and Economic Cycles - The Ludwig von Mises ...

488 Money, Bank Credit, and Economic Cyclesexpanded bank credit by more than twice as much, and inthe years which followed we paid a terrible price for this. 92Murray N. Rothbard calculates that the money supply inthe United States grew from $37 billion in 1921 to over $55 billionin January 1929. 93 These figures closely approximate theestimates of Milton Friedman and Anna J. Schwartz, accordingto whom the money supply increased from over $39 billionin January 1921 to $57 billion in October 1929. 9492 Anderson, Economics and the Public Welfare, pp. 145–57. The aboveexcerpt appears on p. 146.93 Rothbard, America’s Great Depression, p. 88, column 4. Rothbard examinesall peculiarities of the inflationary process, specifically their correspondencewith a deliberate policy of the Federal Reserve, a policyendorsed by, among others, the Secretary of the Treasury, William G.McAdoo, according to whom,The primary purpose of the Federal Reserve Act was to alterand strengthen our banking system that the enlarged creditresources demanded by the needs of business and agriculturalenterprises will come almost automatically into existenceand at rates of interest low enough to stimulate, protectand prosper all kinds of legitimate business. (p. 113)Also see George A. Selgin, “The ‘Relative’ Inflation of the 1920’s,” in LessThan Zero, pp. 55–59.94 Milton Friedman and Anna J. Schwartz, A Monetary History of theUnited States, 1867–1960 (Princeton, N.J.: Princeton University Press,1963), pp. 710–12 (Table A-1, column 8). In the chapter they devote to the1920s, Friedman and Schwartz indicate that one of the principal changesof the period was the decision, for the first time in history, to usecentral-bank powers to promote internal economic stability aswell as to preserve balance in international payments and toprevent and moderate strictly financial crises. In retrospect,we can see that this was a major step toward the assumptionby government of explicit continuous responsibility for economicstability. (p. 240)Although Friedman and Schwartz put their finger on the issue with thisobservation, the inadequacy of the monetary analysis with which theyinterpret their data leads them to consider the cause of the GreatDepression of 1929 to be monetary policy errors committed by the FederalReserve as of that date and not, as the theory of the Austrian Schoolreveals, the credit expansion of the 1920s. Friedman and Schwartz