Economists Milton Friedman and Anna Schwartz argued that the Federal Reserve mishandles monetary policy and exacerbated the Great Depression by failing to provide adequate liquidity to the banking system.
“The Fed pursued an erroneously restrictive monetary policy, exacerbating the Great Depression.”
— Friedman and Schwartz
During the 1920–1921 recession, the decentralized structure of the Federal Reserve led to inconsistent responses across different regions.
Some regional banks faced unique economic challenges, and the lack of coordinated policy exacerbated the downturn.
“The twelve Federal Reserve banks faced very different regional conditions during the recession of 1920–21.”
— Federal Reserve Bank of Atlanta atlantafed.org
The early criticisms of the Federal Reserve laid the groundwork for ongoing debates about its role, transparency, and accountability. Figures like Congressman Louis T. McFadden continued to challenge the institution, accusing it of being controlled by private banking interests and contributing to economic instability.
“The Federal Reserve Board… has cheated the government and the people of the United States out of enough money to pay the national debt.”
— Louis T. McFadden, 1932
These historical critiques continue to influence discussions about the Federal Reserve’s structure and policies today.