- Paperback: 888 pages
- Publisher: Princeton University Press; New Ed edition (November 1, 1971)
- Language: English
- ISBN-10: 0691003548
- ISBN-13: 978-0691003542
- Product Dimensions: 6 x 1.5 x 9 inches
- Shipping Weight: 2.6 pounds (View shipping rates and policies)
- Average Customer Review: 32 customer reviews
- Amazon Best Sellers Rank: #65,086 in Books (See Top 100 in Books)
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A Monetary History of the United States, 1867-1960 New Ed Edition
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A monumental scholarly accomplishment. . . . [sets] a new standard for the writing of monetary history. (The Economic Journal)
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Friedman and Schwartz lay out clear, logical arguments to show the importance of monetary policy on the economy, They cover all of the panics and pay substantial attention to the great depression, offering unconventional views with logic demonstrating why the typical views are misguided. They also weave politics into the narrative and demonstrate the significance of not only what the policies are, but who is in charge. They contend the history of the US (and the world) would have been drastically different if Benjamin Strong didn't pass away as early as he did.
The writing is clear and engaging, the passion of the authors shines throughout the entire narrative. While this book would be more preferable to an educated economist, it is still more than worthwhile for anyone interested in the history of America from a unique perspective and the topics covered are still highly relevant today.
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
Deprhttp://www.amazon.com/review/R1C118WNLAM4I/ref=cm_cr_pr_cmt?ie=UTF8&ASIN=0691137943&nodeID=#wasThisHelpfulession. 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.
Although the book covers the time period between 1857 and 1960, it applies to the situation today to an even greater degree than when it was written in 1963.