Comments on Garber

Abstract

Peter Garber’s paper has carefully documented flows of US paper currency into and out of the United States during the interwar years. As a result, his paper proposes alternative series to those provided by Friedman and Schwartz (1963) for currency held by the domestic public and the domestically held US monetary base for the period in question. W’hile it is true that Friedman and Schwartz’s attempt to correct their series for international movements of gold and coin, they attempt no such adjustment for paper currency flows. As such the Garber paper represents a very exhaustive review of the archival evidence and some very sensible speculation to fill in for what cannot be documented. When I first saw the title and introduction to this paper, I expected that Garber might forcefully be advancing an alternative way of interpreting at least part of the conventional wisdom about the Great Depression. Garber’s discussion avoids such speculation, although some of his findings are subject to that type of interpretation. Garber cites monthly Federal Reserve data showing significant shipments of US paper currency to Europe in September and October 1930. While such movements would not affect the worldwide US monetary base or measurements of the domestically held base, such shipments would lower the monetary base actually held in the United States. This means that the time series for the American held monetary base may not have been as smooth as we have thought and that these currency shipments may therefore have played a role in the banking crises and related monetary factors in 1930 and 1931. This interpretation might lead one to fault the Federal Reserve System for not offsetting these paper currency movements. Garber also notes that huge net receipts of paper currency were reported in 1932 and 1933. Such receipts would suggest that Friedman and Schwartz’s estimates of the American held monetary base for this period, which show a decline, may also be misleading. If we factor in these previously undetected currency inflows, the American held monetary base may actually have been relatively constant in the later period. If this were the case, much of the criticism of the US Federal Reserve System for allowing the monetary base to fall in 1933 might be unfounded. While Garber considers a number of differing sets of assumptions to translate his raw data on paper money flows into alternative measures of the American held monetary base most do not differ significantly enough from those of Friedman and Schwartz to provide much support for conjectures such as those advanced above. In this spirit Garber only tentatively suggests a possibly significant rise in US paper dollar holdings in Europe for the year