Question: What do Monetarists argue caused the Great Depression?
About the article "Great Depression", section "Monetarist".

Candidate passages:
The causes of the Great Depression in the early 20th Century are a matter of active debate among economists, and are part of the larger debate about economic crises, although the popular belief is that the Great Depression was caused by the 1929 crash of the stock market.
The specific economic events that took place during the Great Depression have been studied thoroughly: a deflation in asset and commodity prices, dramatic drops in demand and credit, and disruption of trade, ultimately resulting in widespread unemployment and hence poverty.
However, historians lack consensus in determining the causal relationship between various events and the government economic policy in causing or ameliorating the Depression.
Current theories may be broadly classified into two main points of view and several heterodox points of view.
First, there are demand-driven theories, such as Keynesian economics and Institutional economists who argue that the recession was caused by underconsumption and over-investment (thereby causing an economic bubble).
The consensus among demand-driven theories is that a large-scale loss of confidence led to a sudden reduction in consumption and investment spending.
Once panic and deflation set in, many people believed they could avoid further losses by keeping clear of the markets.
Holding money therefore became profitable as prices dropped lower and a given amount of money bought ever more goods, exacerbating the drop in demand.
Second, there are the monetarists, who believe that the Great Depression started as an ordinary recession, but that significant policy mistakes by monetary authorities (especially the Federal Reserve), caused a shrinking of the money supply which greatly exacerbated the economic situation, causing a recession to descend into the Great Depression.
Related to this explanation are those who point to debt deflation causing those who borrow to owe ever more in real terms.
There are also various heterodox theories that reject the explanations of the Keynesians and monetarists.
Some new classical macroeconomists have argued that various labor market policies imposed at the start caused the length and severity of the Great Depression.
The Austrian school of economics focuses on the macroeconomic effects of money supply and how central banking decisions can lead to malinvestment.
Marxian economists view the Great Depression, with all other economic crises, as a symptom of the classism and instability inherent in the capitalist model. 
Heterodox theories.
Austrian School.
Another explanation comes from the Austrian School of economics.
Theorists of the "Austrian School" who wrote about the Depression include Austrian economist Friedrich Hayek and American economist Murray Rothbard, who wrote "America's Great Depression" (1963).
In their view and like the monetarists, the Federal Reserve, which was created in 1913, shoulders much of the blame; but in opposition to the monetarists, they argue that the key cause of the Depression was the expansion of the money supply in the 1920s that led to an unsustainable credit-driven boom.
In the Austrian view it was this inflation of the money supply that led to an unsustainable boom in both asset prices (stocks and bonds) and capital goods.
By the time the Fed belatedly tightened in 1928, it was far too late and, in the Austrian view, a significant economic contraction was inevitable.
In February 1929 Hayek published a paper predicting the Federal Reserve's actions would lead to a crisis starting in the stock and credit markets.
According to the Austrians, the artificial interference in the economy was a disaster prior to the Depression, and government efforts to prop up the economy after the crash of 1929 only made things worse.
According to Rothbard, government intervention delayed the market's adjustment and made the road to complete recovery more difficult.
However, Hayek, unlike Rothbard, also believed, along with the monetarists, that the Federal Reserve further contributed to the problems of the Depression by permitting the money supply to shrink during the earliest years of the Depression. 
Heterodox theories.
Austrian School.
Austrian economists argue that the Great Depression was the inevitable outcome of the monetary policies of the Federal Reserve during the 1920s.
In their opinion, the central bank's policy was an "easy credit policy" which led to an unsustainable credit-driven boom.
In the Austrian view, the inflation of the money supply during this period led to an unsustainable boom in both asset prices (stocks and bonds) and capital goods.
By the time the Federal Reserve belatedly tightened monetary policy in 1928, it was too late to avoid a significant economic contraction.
Austrians argue that government intervention after the crash of 1929 delayed the market’s adjustment and made the road to complete recovery more difficult.
Acceptance of the Austrian explanation of what primarily caused the Great Depression is compatible with either acceptance or denial of the Monetarist explanation.
Austrian economist Murray Rothbard, who wrote "America's Great Depression" (1963), rejected the Monetarist explanation.
He criticized Milton Friedman's assertion that the central bank failed to sufficiently increase the supply of money, claiming instead that the Federal Reserve did pursue an inflationary policy when, in 1932, it purchased $1.1 billion of government securities, which raised its total holding to $1.8 billion.
Rothbard says that despite the central bank's policies, "total bank reserves only rose by $212 million, while the total money supply fell by $3 billion".
The reason for this, he argues, is that the American populace lost faith in the banking system and began hoarding more cash, a factor very much beyond the control of the Central Bank.
The potential for a run on the banks caused local bankers to be more conservative in lending out their reserves, which, according to Rothbard's argument, was the cause of the Federal Reserve's inability to inflate.
Friedrich Hayek, another prominent Austrian economist, disagreed with Rothbard's criticism of the Monetarist explanation.
In 1975, Hayek admitted that he made a mistake in the 1930s in not opposing the Central Bank's deflationary policy and stated the reason why he had been ambivalent: "At that time I believed that a process of deflation of some short duration might break the rigidity of wages which I thought was incompatible with a functioning economy.
In 1978, he made it clear that he agreed with the point of view of the Monetarists, saying, "I agree with Milton Friedman that once the Crash had occurred, the Federal Reserve System pursued a silly deflationary policy", and that he was as opposed to deflation as he was to inflation.
Concordantly, economist Lawrence White argues that the business cycle theory of Hayek is inconsistent with a monetary policy which permits a severe contraction of the money supply. 
There were multiple causes for the first downturn in 1929.
These include the structural weaknesses and specific events that turned it into a major depression and the manner in which the downturn spread from country to country.
In relation to the 1929 downturn, historians emphasize structural factors like major bank failures and the stock market crash.
In contrast, monetarist economists (such as Barry Eichengreen, Milton Friedman and Peter Temin) point to monetary factors such as actions by the US Federal Reserve that contracted the money supply, as well as Britain's decision to return to the gold standard at pre–World War I parities (US$4.86:£1).
Recessions and business cycles are thought to be a normal part of living in a world of inexact balances between supply and demand.
What turns a normal recession or 'ordinary' business cycle into a depression is a subject of much debate and concern.
Scholars have not agreed on the exact causes and their relative importance.
The search for causes is closely connected to the issue of avoiding future depressions.
A related question is whether the Great Depression was primarily a failure on the part of free markets or a failure of government efforts to regulate interest rates, curtail widespread bank failures, and control the money supply.
Current theories may be broadly classified into two main points of view and several heterodox points of view.
There are demand-driven theories, most importantly Keynesian economics, but also including those who point to the breakdown of international trade, and Institutional economists who point to underconsumption and over-investment (causing an economic bubble), malfeasance by bankers and industrialists, or incompetence by government officials.
The consensus among demand-driven theories is that a large-scale loss of confidence led to a sudden reduction in consumption and investment spending.
Once panic and deflation set in, many people believed they could avoid further losses by keeping clear of the markets.
Holding money became profitable as prices dropped lower and a given amount of money bought ever more goods, exacerbating the drop in demand.
There are the monetarists, who believe that the Great Depression started as an ordinary recession, but that significant policy mistakes by monetary authorities (especially the Federal Reserve), caused a shrinking of the money supply which greatly exacerbated the economic situation, causing a recession to descend into the Great Depression.
Related to this explanation are those who point to debt deflation causing those who borrow to owe ever more in real terms.
There are also various heterodox theories that downplay or reject the explanations of the Keynesians and monetarists.
For example, some new classical macroeconomists have argued that various labor market policies imposed at the start caused the length and severity of the Great Depression.
The Austrian school of economics focuses on the macroeconomic effects of money supply, and how central banking decisions can lead to over-investment (economic bubble). 
A realistic theory should be able to explain the deflationary waves of the late 19th century, the Great Depression, and the stagflation period beginning with the uncoupling of exchange rates in 1972.
Monetarists argue that there was no inflationary investment boom in the 1920s.
Instead, monetarist thinking centers on the contraction of the M1 during the 1931–1933 period, and argues from there that the Federal Reserve could have avoided the Great Depression by moves to provide sufficient liquidity.
In essence, they argue that there was an insufficient supply of money.
From their conclusion that incorrect central bank policy is at the root of large swings in inflation and price instability, monetarists argued that the primary motivation for excessive easing of central bank policy is to finance fiscal deficits by the central government.
Hence, restraint of government spending is the most important single target to restrain excessive monetary growth.
With the failure of demand-driven fiscal policies to restrain inflation and produce growth in the 1970s, the way was paved for a new policy of fighting inflation through the central bank, which would be the bank's cardinal responsibility.
In typical economic theory, this would be accompanied by austerity shock treatment, as is generally recommended by the International Monetary Fund: such a course was taken in the United Kingdom, where government spending was slashed in the late 1970s and early 1980s under the political ascendance of Prime Minister Margaret Thatcher.
In the United States, the opposite approach was taken and real government spending increased much faster during President Ronald Reagan's first four years (4.22%/year) than it did under Carter (2.55%/year).
In the ensuing short term, unemployment in both countries remained stubbornly high while central banks raised interest rates to restrain credit.
These policies dramatically reduced inflation rates in both countries (the United States' inflation rate fell from almost 14% in 1980 to around 3% in 1983 ), allowing liberalization of credit and the reduction of interest rates, which led ultimately to the inflationary economic booms of the 1980s.
Arguments have been raised, however, that the fall of the inflation rate may be less from control of the money supply and more to do with the unemployment level's effect on demand; some also claim the use of credit to fuel economic expansion is itself an anti-monetarist tool, as it can be argued that an increase in money supply alone constitutes inflation.
Monetarism re-asserted itself in central bank policy in western governments at the end of the 1980s and beginning of the 1990s, with a contraction both in spending and in the money supply, ending the booms experienced in the US and UK.