Bryan:
Well clearly we are reading different sources.
The stuff I have seen points to 3-4 primary points of causality of the great depression (assuming we are not focusing on Marxist thought or the fringes of Keynesian thought). Those are:
-hyper leveraging at the consumer and firm level
Eg: too many loans used to bet on margin.
-broad return to precious metal standards
Eg: the run on British Sterling’s gold in ’31 (and implied near run on US dollar’s gold in ’32)
-deflationary debt counter-incentives
Eg: you can’t borrow if the value of the money is going up dramatically each day.
-increase in interest rates (sometimes framed in terms of contracting monetary policy)
Eg: How do you borrow when interest rates are too high?
-institutional market-accelerators (not a primary cause but companies failing tend to create a longevity of despair)
Eg: Failing banks leave lots of people without confidence in financial markets.
Experts: Peter Temin, Irving Fisher, Ben Bernanke, Barry Eichengreen, Paul Krugman, Milton Friedman, Anna Schwartzman
Sources: Just google them. They all have like a hundred articles and books in print.
You could make the argument that the leveraging is an example of dumb credit expansion on the part of banks (I am assuming that is what you mean by expansion of bank credit as opposed to say borrowing from the fed).
You could also make the argument that the increase in rates (ironically to counteract a perceived speculative bubble) was instrumental in the 1929 crash. That is what Bernanke argues (though, in the wake of 2 organic speculative bubble bursts, he may back off of those assertions).
However, you could not make the argument convincingly that increasing money supplies in a deflationary cycle is bad. Deflation is usually prohibitive to lending and therefore creates a positive feedback loop. There is less money to go around and so prices deflate further.
That is where the whole love affair with the precious metal standard breaks down.
Can you explain to me why I am wrong-headed in this?
Incidentally, the central bank was not dropped on the country like a cargo container. It was requested by the ad hoc coalition of banks (headed by JP Morgan) following the 1907 problems.
