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on March 7, 2005
Milton Friedman and Anna J. Schwartz' A Monetary History of the United States, 1867-1960 is an analysis and explanation of the Great Depression of the 1930s. Its conclusion, first published in the early 1960s, differs from the two main explanations that existed at the time.

Austrian Business Cycle Theory had argued that the Great Depression was caused by excessively loose monetary policy that fed an unsustainable economic boom during the 1920s, which eventually collapsed into depression. Friedman and Schwartz argued that instead it was excessively tight monetary policy following the boom of the 1920s that turned a run-of-the-mill recession into a depression. (For the Austrian explanation of the Great Depression, see Sir Lionel Robbins' The Great Depression or Murray Rothbard's America's Great Depression.)

Keynesianism argued that the Great Depression had been caused by insufficient consumer product demand and lack of investor confidence, and that government should compensate for this by increasing its spending and financing it with government debt. Friedman and Schwartz argued instead that the problem and solution were not so much a matter of fiscal policy as they were a matter of monetary policy. Government, particularly the monetary authorities, was the cause of the depression, not the solution. Stimulative fiscal policy as prescribed by Keynes would in the long run not lead to an increase in economic growth and employment, but only to an increase in inflation. (For the Keynesian explanation of the Great Depression, see John M. Keynes's The General Theory of Employment, Interest and Money or John Kenneth Galbraith's The Great Crash, 1929.)

At the time of its publication, A Monetary History was not immediately accepted by the economics profession, which then was still dominated by Keynesian thinking. But when Keynesian theory could not explain the stagflation (recession combined with high inflation) of the 1970s, monetarism came to rule the day, and Friedman would go on to win the 1976 Nobel Prize in Economics.

Friedman and Schwartz's analysis has by now become the standard explanation for the Great Depression. In the very least, the book helped reestablish the importance of monetary over fiscal policy in the stabilization of the business cycle. Money matters, even if it is not the only thing that matters. In addition, the importance of the book was methodological, in that it emphasized the importance of the empirical testing of one's economic propositions. What makes the book so persuasive is the great lengths to which the authors go to sort out the causation behind the correlation-the causation, they found, ran from money to output and prices rather than vice versa or via a fourth variable.

A Monetary History is a classic work in the canon of economic literature. It is on occasion still reviewed in the literature (e.g. Journal of Monetary Economics, August 1994; Cato Journal, Winter 2004). It clearly is an academic work written for trained economists, making it perhaps less accessible to a general audience. But several highly readable summary versions of the book exist, such as chapter 3 of Milton and Rose Friedman's Free to Choose, and even a one-paragraph summary conclusion in Capitalism and Freedom (on p. 45 of the paperback edition), which was published around the same time as A Monetary History. Alternatively, ch. 13 ("A Summing Up", pp. 676-700) is reprinted in The Essence of Friedman.
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on August 20, 2003
I read the reviews and found them helpful, but the unnamed reviewer that attributed the Great Depression to causes totally other than this book cites, and bashed Friedman as "not having a leg to stand on" concerned me because it seems the reviewer missed the very point of the book. Nobel prize winning economist Milton Friedman and his co-author undertook the monumental work of tracing money supply for each year for nearly a century. In doing so, they did the staggering amount of work required to show all of us something very powerful. To say they don't have a leg to stand on is disconcerting because it seems to indicate a review without a reading, or at least understanding. Obviously the Great Depression was the result of of complex interactions within the economy. What Friedman tries to do is show us the EMPIRICAL evidence for interaction between a contracting money supply and a worsening economic situation, and a steady money supply and a bettering economic situation. The Great Depression may have come about because of arrogant decisions and cascading failures, and those who decided to contract the money supply evidently were a very important trigger. I can say "evidently" because Friedman's research gives us the chance to observe the evidence for ourselves. To have advanced our knowledge of economics in a practical way, to have given useful facts for fending off depressions, is a gift. That's why this book will remain a watershed work in the history of economics.
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on March 21, 2003
Monetary History of the US served a vital purpose when it first came out, and still has much use value. For a brief period, economists ignored the importance of variations in the nominal quantity of money to business cycles. This book provided important evidence that helped correct that error. Economists used to focus on spending rather than the money supply. This book, along with subsequent work, showed that money matters.
The most important part of this book is the section on the Great Contraction. Federal Reserve policy did contract the money supply by 1/3 during the early years of the depression. The Federal Reserve did revive the depression by increasing reserve requirements in 1937. The collapse of the banking system collapsed the real economy. The recovery of the banking system was important to the recovery of industry. Money matters.
The style of this book is excellent. Considering the sophistication of its subject matter, it is highly readable. It gets into both statistics and relevant written history. It also has a helpful appendix on the determinants of the money supply.
There are some problems with this book. Money is not all that matters. Government policies that prevented wage deflation contributed greatly to the Great Depression. Of course, this book was meant to focus on monetary history alone, as the title implies. But, readers must keep the limitations of such a narrow focus in mind when considering the explanatory power of this book. Its' authors also have too little appreciation for private banking systems (Friedman latter embraced free banking). Despite its' limitations, this book is important as a empirical source for understanding how money matters to economic conditions.
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VINE VOICEon July 17, 2012
A significant number of graphs, charts, and tables are missing from the Kindle version of this book, apparently because digital rights could not be secured for publication. Buy the print version of the book instead of wasting your money on the Kindle version.
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on January 22, 2010
"A Monetary History of the United States, 1867-1960" by Milton Friedman and Anna Schwartz is an epic in economic literature. The authors concisely analyze nearly 100 years of monetary history and prove why monetary economics matter. Their work, originally published in 1963, offers immaculate insight into endogenous and exogenous economic variables that shaped US history.

When reviewing a classic text it is important to test it on two criteria: 1) it's ingenuity; and, 2) it's validity. In regards to ingenuity "Monetary History" paved the way towards a statistically grounded analysis of macroeconomics (in this case monetary theory). While "Monetary History" was groundbreaking it's truly memorable aspect is Ch7's "The Great Contraction". This chapter, which is now known as the money hypothesis, revolutionized the way economists thought about the Great

Depr Ultimately, this analysis proved to be incorrect.

Why the work remains a classic, even though flawed, is because the sheer difficulty in producing such a feat. Friedman and Schwartz managed to put together a comprehensive 100 year monetary history in (a short) 700 pages. The amount of research required to take on such a project is hard to grasp. The footnotes in the "Monetary History" give a small glimpse into how much work was required to create this book. They alone are the size of a mid-sized economic text. Throughout the text the authors synthesis a wide range of evidence, often being forced to recalculate the statistics given to them, and somehow come out with a fairly consistent history.

The work is so encompassing it is impossible in an Amazon book review to point out all of the prescient ideas presented in a "Monetary History". Here is a short list off the top of my head: 1) money matters in the short-run; 2) active gov't policy can prevent bank panics if correctly implemented; 3) Consistent misperception regarding economics have OFTEN created bad policy (both in the private and public sphere); 4) the gold standard was never good (and we never had anything near an ACTUAL gold standard); 5) An excellent review of business cycle contractions between 1844-1960; 6)Everything you wanted to know about the composition of banking mechanisms from 1867-1960. There are many, many more...

Friedman's "Monetary History" analysis does occasionally feel awkward (this tends to happen when his quantitative analysis does not account for history and he is forced to make qualitative assumptions). 1) The entire Great Contraction rested on the qualitative factor of not having a 'Great Man' running the Federal Reserve; 2) Deflation existed side by side with rapid economic expansion in the 1880's, which Friedman finds interesting, but no attempt is made to ascertain whether monetary issues had any recessionary effects on potential growth; 3) The entire 48-60' analysis exerts a strong ideological stance that did not seem to exist in the earlier chapters. (many more minor hiccups exist and for the most part Friedman is willing to admit when he cannot reasonably prove causation).

However, two major problems exist in the "Monetary History".

1) The assumption that money does not matter in the long-run is unsupported through their analysis. Friedman and Schwartz fail to find any long lasting effects regarding changes in the price level and money stock to changes in economic activity. This view, which is a very simple look at correlations, is essentially embracing a negation. They fail to find a connection between monetary economics and business cycles so it must not exist. Though this view has little empirical evidence it is made several times throughout the work (and in almost every case the statement seems to be completely out of place). The claim that money is 'neutral' has forever changed economics by being included in the Neoclassical Synthesis.

2) Friedman's chapter on the velocity of money is by far the weakest part of his text. After going on for ~700 pages with precise attention to quantitative analysis Friedman is forced to argue, in a mere 3 pages, that changes in velocity must be due to rational expectations (with little empirical evidence). Friedman's assumption that Velocity exhibits a secular decline with rising income is CRUCIAL when analyzing Monetarism. The Quantity Theory of Money states: Money*Velocity=Price*Output --- M*V=P*Y (this is a rearrangement of Fisher's equation -- See Michael Emmett Bradely's review for a far superior theoretical analysis of this equation). If Velocity can be considered constant then changes in M = changes in P*Y. This means all that is needed to have stable business cycles is an unchanging, or better yet a slightly increasing, money supply. HOWEVER, this flawed assumption is why Monetarism is so difficult to implement into policy. Friedman's tentative assumption in his "Monetary History" became the dogma of Monetarism.

"A Monetary History of the US, 1867-1960" is a revolutionary, albeit flawed, canon in economic literature.
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on March 24, 2012
I have just started reading the book (the kindle version). Many of the images are missing "due to rights". Please consider this before buying the kindle version.
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on December 31, 2008
This is perhaps the best work if you are simply looking for examples of how government intervention can cause harm instead of good. Additionally, this has been the work that pushed the recognition of monetarism into the heat of the economic mindset.

This being said, it is important to note that the theory underlying this endeavor is not an ample explanation of the Great Depression as it is conventionally used. The bottom line is that there are simply far too many exogenous and endogenous factors that operate regardless of what or what not government policy may influence. Additionally, the compilation of data and analyses from financial markets over the years shows with clarity that Friedman's general framework is a very special exception, not a rule. Read Michael Emmett Brady's review, as he seems to touch on this more.

Ultimately, the conclusion, in my opinion, is not worth the effort. Everyone long understood, if perhaps not the extent, the potential for intervention through misguided fiscal or monetary policy to cause harm. Friedman's methodology is far too ideologically tempered to continue to be taken seriously. However, the compilation of statistical data alone make this a necessary purchase for anyone serious about (ironically) economic history in the United States. It is (Edit - was) also a highly original analysis of depression economics, for those interested. Even with the truckload of ideology and faulty, sometimes absurd, assumptions taken to build a logical framework, this book is worth reading simply because of its influence on economics as a discipline. The main question is its relevance.

Conclusion - Buy this for compiled data and statistics, and to understand the thinking that has had huge effect, if not for quite a while dominated, mainstream economics. Leave the ideology at the door.
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on October 11, 2011
I have mixed feelings reviewing a classic like this. This book has ultimately changed the entire outlook of the economic profession, in that most economists now believe that the main cause of the Great Depression was due to monetary causes, whereas previously the consensus was more that it was due to the excesses of the '20's or insufficient demand. Just because of the importance of the book, perhaps it deserves five stars. However, I feel that I need to review the book for how valuable it is to someone reading it today, and not its value in the past.

The greatest value of the book is simply the enormous amount of data that had to be collected to create this book. I suspect I will be referencing this book the rest of my life, when I want to find economic statistics in the future. Finding any economic statistics from the 19th Century is difficult; this book provides large quantities of numbers all the way back to the Civil War. And I believe the book makes a pretty good case that money does matter. The dramatic decline in the money stock during the Great Contraction, in pretty good sync with the decline of income and industrial production, proves to me that monetary causes were at least a major component of the severity of the crash. I would not agree with Friedman that money is as important as he generally said it was in his career, but this book proves that it is important. But it isn't a failing of the book to emphasize money, because that's what the book is about.

The reason I did not give it five stars is because they simply did not explain enough of what they were talking about. They talked about all these different Federal Reserve strategies to tighten or loosen credit, and all these different monetary components, but they rarely explained them in detail. Also, there was discussion about how certain actions increased or decreased money or credit, but did not explain the mechanism. Perhaps this was written for those with a graduate degree in Economics, and perhaps such readers would instantly understand all these details, but I am reviewing this as a layperson. My knowledge is probably about equivalent to a B.A. in Economics. I wouldn't recommend this book to someone without some basic knowledge of banking and economics, at a college level.

I don't understand those negative reviews of this book from an ideological point of view. This book is essentially a book of historical statistics about money, along with a narrative trying to explain these numbers. I saw very little ideology in this book. Obviously the authors believe that money matters, but who would read the book if they disagree?

All the numbers and complex narrative did make this book sometimes difficult to wade through. But there was one big surprise for me from the statistics. After 1933, income and industrial production rose sharply through the rest of the '30's, except for the contraction of 1937. My whole life I've heard that the Great Depression lasted throughout the '30's and only ended because of the mobilization required by WWII. These statistics seem to contradict that story. When I look elsewhere, I see that unemployment did remain in double digits throughout the '30's, so it is true that life was tough for the entire decade. But it appears the issue is why employment didn't increase as income and industrial production did? My guess is that it related to the minimum wage and the rise of unions in the '30's, but now I am getting ideological.
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VINE VOICEon August 1, 2010
A departure from other Friedman books this is truly a historical walk down 100 years. Not too much commentary about whether Friedman agrees/disagrees with monetary policy but it's so well researched you can't help but get caught up in the historical significance of monetary policy.. and boy does history ever repeat itself. Not for the faint at heart, this book is for the serious economic student.
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TOP 100 REVIEWERon February 16, 2012
Milton Friedman (1912-2006) was an American economist who taught at the University of Chicago (and was the leader of the "Chicago school"); he received the Nobel Prize in Economics in 1976, and wrote/cowrote books such as Free to Choose,Money Mischief: Episodes in Monetary History,Bright Promises, Dismal Performance: An Economist's Protest,Tyranny of the Status Quo,Capitalism & Freedom: A Leading Economist's View of the Proper Role of Competitive Capitalism, etc. (NOTE: My page references refer to the 860-page 1993 edition.)

The authors note in the Preface to this book (which was originally published in 1963), "This book had its origin in a conversation that one of us had more than a decade ago... (suggesting) the desirability of ... an 'analytical narrative' of the post-Civil War monetary developments in the United States as a background for the statistical work, arguing that such a narrative ... would add a much needed dimension to the numerical evidence... Despite the length to which this volume has grown, we are painfully aware of its restricted scope... A full-scale economic and political history would be required to record at all comprehensively the role of money in the United States in the past century. Needless to say, we have not been so ambitious."

They are admittedly dealing with substantial uncertainty. They admit about the Greenback Period, "The fraction of the maximum issue fluctuated with the profitability of the issue, but the fraction throughout was lower than might have been expected. We have no explanation for this puzzle." (Pg. 23) About their figures for 1873-1878 and 1892-96, they state, "this result probably reflects more on the accuracy of our evidence than on a valid difference between the periods." (Pg. 186)

They make a strong statement about a statement of the "Fundamental Principles of the Federal Reserve Act": "It is hard to escape the conclusion that much of this section is disingenuous, designed to turn aside the criticisms without either meeting them or making explicit misstatements." (Pg. 250) A later section "offers little beyond glittering generalities instructing the men exercising the judgment to do the right thing at the right time with only the vaguest indications of what is the right thing to do." (Pg. 253)

About the Great Depression period, they opine, "The conclusion seems inescapable that a shortage of free gold did not in fact seriously limit the alternatives open to the (Federal Reserve) System. The amount was at all times ample to support large open market purchases... The problem of free gold was largely an ex post facto justification for policies followed, not an ex ante reason for them." (Pg. 406)

They argue, "banking panics have occurred only during severe contractions and have greatly intensified such contractions, if indeed they have not been the primary factor converting what would otherwise have been mild contractions into severe ones. That is why we regard federal deposit insurance as so important a change in our banking structure and as contributing so greatly to monetary stability---in practice far more than the establishment of the Federal Reserve System." (Pg. 441-442)

They admit in the "Summing Up" chapter that "There is one sense ... in which a case can be made for the proposition that the monetary decline was a consequence of the economic decline... The System was operating in a climate of opinion that in the main regarded recessions and depressions as curative episodes, necessary in order to purge the body economic of the aftereffects of its earlier excesses... Given that milieu, it can be argued that the System followed an inevitable policy... and that its failure to act vigorously... reflected the attitude that it was desirable to liquidate 'bad' banks, to let 'nature take its course' rather than to support the financial system 'artifically.'" (Pg. 691-692)

This long, detailed, and complex work is essential reading for anyone interested in contemporary economic theory and history.
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