Friday, June 22, 2012

Anna Schwartz, Milton Friedman’s Co-Author, Has Died

Anna Schwartz, an economist and co- author with Milton Friedman of a book on monetary policy, has died. She was 96.

Schwartz wrote with Friedman, the well received by mainstream economists  “A Monetary History of the United States, 1867-1960”.

The great economist Murray Rothbard had a different take:
... in his highly touted Monetary History of the United States, Friedman his demonstrated his Fisherine bias in interpreting American economic history.14 Benjamin Strong, undoubtedly the single most disastrous influence upon the economy of the 1920s, is lionized by Friedman precisely for his inflation and price-level stabilization during that decade.15 In fact, Friedman attributes the 1929 depression not to the preceding inflation boom but to the failure of the post-Strong Federal Reserve to inflate the money supply enough before and during the depression.
During the 1930s, therefore, the Fisher-Chicago position was that, in order to cure the depression, the price level needed to be "reflated" back to the levels of the 1920s, and that reflation should be accomplished by:In short, while Milton Friedman has performed a service in bringing back to the notice of the economics profession the overriding influence of money and the money supply on business cycles, we must recognize that this "purely monetarist" approach is almost the exact reverseof the sound – as well as truly free-market – Austrian view. For while the Austrians hold that Strong’s monetary expansion made a later 1929 crash inevitable, Fisher-Friedman believe that all the Fed needed to do was to pump more money in to offset any recession. Believing that there is no causal influence running from boom to bust, believing in the simplistic "Dance of the Dollar" theory, the Chicagoites simply want government to manipulate that dance, specifically to increase the money supply to offset recession.
  1. the Fed expanding the money supply, and
  1. the Federal government engaging in deficit spending and large-scale public works programs.
In short, during the 1930s, Fisher and the Chicago School were "pre-Keynes Keynesians," and were, for that reason, considered quite radical and socialistic – and with good reason. Like the later Keynesians, the Chicagoans favored a "compensatory" monetary and fiscal policy, though always with greater stress on the monetary arm.

More recently, Schwartz  has spoken truth to power. She was as an outspoken critic of efforts by the Fed and Treasury to  bail out companies during the financial crisis of 2008. She called the 2008 rescue of Bear Stearns Cos. a “rogue operation” and an unwise widening of the government’s safety net.

“To me, it is an open and shut case,” she said in an interview in May 2008. “The Fed had no business intervening there.”


  1. “To me, it is an open and shut case,” she said in an interview in May 2008. “The Fed had no business intervening there.”

    Other than willful ignorance, I don't know why people in academia won't look at the Fed as to what it actually is: An organization set up to bail out its patrons, the big Wall Street banks, out of financial trouble. All the talk about "price stability" and employment is BS.

    To me, the Fed did exactly what it was intended when it was created.

    RIP Anna

  2. Even Friedman recanted his prior views on the gold standard eventually. It is pretty decent of Schwartz to speak against the Fed, and she is to be commended for that, but if only she had done so earlier in her career.