"The Federal Reserve System was created in 1913 and soon did what central banks almost always do: it started printing lots of money. During World War I the Bank of England inflated its money supply, and as a result a significant amount of gold flowed out of Great Britain to the United States in the 1920s. Instead of controlling their monetary expansion, the British authorities put pressure on the U.S. government to expand its own money supply. The Fed happily complied and engaged in significant monetary inflation throughout most of the decade. This extra liquidity helped fuel the stock-market boom, but by 1928 it was obvious that monetary expansion had gone too far, and the Fed changed course. What ensued was a massive contraction of the money supply, followed by many years of incoherent and incompetent monetary policy that strongly contributed to the length and severity of the Great Depression." Read more.
Kirby R. Cundiff
The Freeman, January 2007, Vol. 57, Issue 1.
Via the Foundation for Economic Education.