Part2: An historical orthodoxy of the Great Depression (3/4)

On March 26th, 2020, the governor of the US Federal Reserve System, Jerome Powell, made an extraordinary declaration: ‘We’re not going to run out of ammunition’. In doing so, he sought to reassure Americans that the country’s central bank stood ready to take any action necessary to stem the mounting economic problems associated with the COVID-19 pandemic. He was not exaggerating: in a period of less than 3 months from late February 2020, the Fed injected nearly $3 trillion dollars into the US economy, more than it had injected in the five years following the global financial crisis of 2008-2009. Such bold action, taken with only a modicum of democratic oversight, seems to define a new normal not only for the Fed but for many of the world’s richest central banks. For those with a taste for dark humour, there is a profound irony to be enjoyed from excavating the origins of this type of radical monetarist interventionism. In this session, we will trace the intellectual justification for quantitative easing by central banks as a response to economic crisis to the arguments and evidence that Milton Friedman and Anna Schwartz mobilised in their 1963 book, A Monetary History of the United States. Second, we will review how their account gained extraordinary influence, fostering a remarkable consensus among prominent economists and economic historians about the lessons of the Great Depression. Third, we will consider how these lessons were substantially modified and adapted to new circumstances, initially during the financial crisis of 2008-2009 and subsequently in the context of the ongoing health crisis. In this way, we will think about the implications of our understanding of historical crises for dealing with crises in the present.