This paper is about the explanation of the Great Depression given in Keynes’ General Theory. There are two key ideas in this book that set it apart from pre-Keynesian economics: The first is that there is something distinctive about the labor market that makes the marginal disutility of labor

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(ii) development of

This paper examines the role of monetary policy in the early stages of the Great Depression and considers the mechanism whereby this policy may have affected real activity. I conclude that the depression was preceded by a dramatic shift towards a highly contractionary monetary policy. The economic

suggestions. This research was supported by the National Science Foundation and the Alfred P. Sloan Foundation. This paper is

Bank of Minneapolis and University of Minnesota. We thank the NSF for financial support. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System. The Great Depression is not yet well understood

was similar to the Great Depression in the United States. However, total factor productivity (TFP) in Canada did not recover relative to trend, while in the United States TFP had recovered by 1937. We find that the neoclassical growth model, with TFP treated as exogenous, can account for over half

B [1963]), macroeconomists have argued that financial markets were important sources and propagators of decline during the Great De-pression. Turning points during the Depression often coincided with or were preceded by dramatic events in financial markets: stock market collapse, waves

*Preliminary versions of most of the papers in this volume were presented at the “Great Depressions of the Twentieth Century ” at the Federal Reserve Bank of Minneapolis. We thank the Minneapolis Fed for organizing and funding this conference. We also would like to thank the members of the Applied

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