The money supply has tended to rise more rapidly during business cycle expansions than during business cycle contractions. The rate of rise has tended to slow down before the peak in business and to accelerate before the trough.
Since 1914 an actual decline of the money supply has occurred during only three business cycle contractions, each of which was severe as judged by the decline in output and rise in unemployment: 1920 to 1921, 1929 to 1933, 1937 to 1938. The severity of the economic decline in each of these cyclical downturns, it is widely accepted, was a consequence of the reduction in the quantity of money, particularly so for the downturn that began in 1929, when the quantity of money fell by one-third, an unprecedented reduction.