Monetary Trends and Other Phenomena

Abstract

The publication of Monetary Trends in the United States and the United Kingdom by Milton Friedman and Anna J. Schwartz completes a cycle of publications on monetary topics that has extended over the whole of my professional life.' A Monetary History of the United States, 1867-1960, appeared in 1963, before I completed my doctoral dissertation, and Monetary Statistics of the United States was published in 1970. Together with related publications by Friedman, Schwartz, Cagan, and others, these books have transformed the field of monetary economics and monetary history.2 One index of the transformation is that it is impossible to remember the state of the field before the Monetary History, with its new data and its sweeping revision of macroeconomic history in the last century. Friedman and Schwartz's account of the Great Contraction is perhaps the most well-known story, but our view of how the money-supply process works, how foreign exchange rates were determined, and how other business cycles developed also bear the unmistakable stamp of their reasoning and their data. Even when we disagree with their conclusions, as I often do, we still use Friedman and Schwartz's work as the starting point for our own. The first part of this essay will attempt to survey this massive intellectual edifice as a whole and reflect on its place in the intellectual landscape of economic history. Other reviewers have discussed the impact of Friedman and Schwartz's work on current topics, and I will neglect that aspect of their work here.3 The second and third parts will take a closer look at two of the pillars on which this impressive building stands: the demand for money and the relationship of money to interest rates. Here, too, I will focus on the historical aspects of the questions, concentrating on the long run in Section II and on the inter-war period in Section III.