The Monetary Policy of the Federal Reserve System as the Cause of the Great Depression in the USA from the Point of View of Austrian School and Monetarism

The master’s thesis deals with analysis of the monetary policy of the Federal Reserve System in the 1920s and 1930s from the perspective of Austrian school and monetarism. The goal is to analyse how the Fed behaved in the selected period, how it influenced the Great Depression and how followers of Austrian school and monetarism approach the issue. In the first part, It is described the creation of the Fed, the development of monetary policy, the response to the recession in the 1920s, consequences of the stock market crash, anti-crisis measures during the depression and the development of monetary policy during the administration of president Roosevelt. Master's thesis is supplemented with the theoretical stances of the mentioned economic schools. In the second part, individual economic indicators such as the rate of inflation, the discount rate, the money supply or the rate of gold reserves are analysed. Graphical analysis is supplemented by discussions with selected economic opinions and all indicators are subjected to a correlation analysis. The resulting finding is that the Fed as a lender of last resort, maintained the stability of the banking system in the 1920s as required by law, but failed in this position in the 1930s and allowed thousands of banks to fail. Another finding is that the gold standard, its set up and operation, exacerbated the Great Depression in the USA. The thesis confirms the hypothesis that, from the point of view of Austrian school and monetarism, the monetary policy of the Federal Reserve System in the 1929-1933 was inappropriate and worsened the course of the Great Depression in the USA.