TheGreat Contraction, as characterized by economistMilton Friedman, was therecessionary period from 1929 until 1933, i.e., the early years of theGreat Depression.[1] The phrase was the title of a chapter in the 1963 bookA Monetary History of the United States by Friedman and his fellowmonetaristAnna Schwartz. The chapter was later published as a stand-alone book titledThe Great Contraction, 1929–1933 in 1965.[1] Both books are still in print fromPrinceton University Press, and some editions include as an appendix a speech honoring Friedman in whichFederal Reserve GovernorBen Bernanke made this statement:
Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression, you're right. We did it. We're very sorry. But thanks to you, we won't do it again.[2][1]
— Ben S. Bernanke
Friedman and Schwartz argued that theFederal Reserve could have lessened the severity of theDepression, but failed to exercise its role of managing themonetary system and amelioratingbanking panics underFed chairmenRoy A. Young andEugene Meyer.
The Great Contraction is not to be confused with theGreat Compression, which refers to a period beginning around 1940 when (according to some economists such asPaul Krugman)economic inequality declined due toprogressive taxation and other policies of theFranklin D. Roosevelt administration.
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