[Will88]

You have the inaction part right, but the Fed didnt actually do anything to cause the bank failures and the 30% collapse of the money supply. The collapse was a vicious spiral set in motion by bank runs, the absence of deposit insurance to protect customers, and the peculiarity of American branch banking law.

But the Fed's inaction was akin to a doctor who fails to give antibiotics to a patient with the beginnings of a serious bacterial infection. The Feds inaction set a chain of events in motion just as certainly as a proper action by the Fed could have set a chain of events in motion that would have prevented bank failures.

Inaction was a decision by the Fed, so they did do something that caused bank failures and the GD: they made the wrong decisions.

[Pelham]

Your analogy is flawed because prescribing antibiotics is routine and known to all doctors. The 1930s Fed was in uncharted territory and they didn’t have our benefit of hindsight.