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Page 45
pause before he takes for granted, as is so often done, that an agency as long established, as powerful, as pervasive as the Federal Reserve System is performing a necessary and desirable function and is contributing to the attainment of the objectives for which it was established.
I am myself persuaded, on the basis of extensive study of the historical evidence, that the difference in economic stability revealed by the crude comparison is in fact attributable to the difference in monetary institutions. This evidence persuades me that at least a third of the price rise during and just after World War I is attributable to the establishment of the Federal Reserve System and would not have occurred if the earlier banking system had been retained; that the severity of each of the major contractions192021, 192933, and 193738is directly attributable to acts of commission and omission by the Reserve authorities and would not have occurred under earlier monetary and banking arrangements. There might well have been recessions on these or other occasions, but it is highly unlikely that any would have developed into a major contraction.
I clearly cannot present this evidence here.2 However, in view of the importance which the Great Depression of 192933 played in formingor, I would say, deforminggeneral attitudes toward the role of government in economic affairs, it may be worth indicating more fully for this episode the kind of interpretation suggested by the evidence.
Because of its dramatic character, the stock market crash in October, 1929, which terminated the bull market of 1928 and 1929 is often regarded as both the start and the major proximate cause of the Great Depression. Neither is correct. The peak of business was reached in mid-1929, some months prior to the crash. The peak may well have come as early as it did partly as a result of relatively tight money conditions imposed by the Federal Reserve System in an attempt to curb ''speculation"in this indirect way, the stock market may have played a role in bringing about the contraction. The stock market crash in turn undoubtedly had some indirect effects on business confidence
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2 See my A Program for Monetary Stability and Milton Friedman and Anna J. Schwartz, A Monetary History of the United States, 18671960 (forthcoming by Princeton University Press for the National Bureau of Economic Research).

 
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