Title

A Public Choice Theory of the Great Contraction”

Document Type

Article

Journal/Book Title/Conference

Public Choice

Volume

59

Publication Date

1988

First Page

3

Last Page

23

Abstract

Perhaps no other economic phenomenon or event has inspired as intense research interest as the Great Depression. Until the early sixties, the Depression was usually modeled in Keynesian income-expenditure terms. In this view, a collapse in investment spending triggered a sharp increase in the demand for liquidity, which led to runs on banks. Because the process was based on revisions of expectations rather than on 'real' factors, even the easy money policies pursued by the Federal Reserve (Fed) following the stock-market collapse could not succeed in stabilizing the economy. Changes in the quantity of money played no important role in the Keynesian interpretation.

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