No, I didn’t say you misread Friedman, but maybe you’re misreading me now?
It’s widely acknowledged that one of the chief causes of the *crash* of the stock market (or rather, the huge runup prior to the crash, take your pick) was “easy money” via the FED, which worked its’ way into the market for speculation, usually on margin.
But, the real question is whether or not I’m misreading PJB. And also if PJB had misread Friedman.
There is a continuing debate on the causes of the Great Depression, although economists are starting to converge on the reasons for it lasting so long in the U.S. while most of the rest of world was back to normal by the mid-Thirties. Something to do with FDR's policies, wouldn't you know?
Friedman and Schwartz made much of the Fed's geeing where should have hawed after the Crash of '29, reducing the real money supply by 1/3 when there was need for more money, not less. The deflation that resulted caused banks to fail and borrowers to default when they were unable to meet scheduled payments. Farmers were especially hurt, as most of the farmland that had been newly added during the '20s was heavily mortgaged and grain prices dropped precipitously after the market crashed. The Smoot-Hawley Tariff also had a detrimental effect on farmers, as they found it more difficult to sell any of their produce abroad after other countries retaliated with their own trade barriers.
The Austrian School, which has always emphasized that government actions meant to help people can have unintended but opposite consequences, blames the Federal Reserve for the Depression. Among other things, it inflated the money supply all through the '20s as a way of protecting our ally, Great Britain, as they were attempting to re-establish a pre-war gold standard for the pound. The inflation caused malinvestment, an overheated economy and rampant speculation (think Florida real estate). After the Fed tightened in 1928, the party was over.
Who's right? Maybe a little of each, or maybe none.
One thing we can agree on: it wasn't the failure of capitalism. Another, I hope we can agree on: The New Deal did not save capitalism.