Friedman and Schwartz's A Monetary History of the United States, 1867-1960, published in 1963, stands as one of the most influential economics books of the twentieth century. A landmark achievement, the book marshaled massive historical data and sharp analytics to support the claim that monetary policy--steady control of the money supply--matters profoundly in the management of the nation's economy, especially in navigating serious economic fluctuations. The chapter entitled "The Great Contraction, 1929-33" addressed the central economic event of the century, the Great Depression. Published as a stand-alone paperback in 1965, The Great Contraction, 1929-1933 argued that the Federal Reserve could have stemmed the severity of the Depression, but failed to exercise its role of managing the monetary system and ameliorating banking panics. The book served as a clarion call to the monetarist school of thought by emphasizing the importance of the money supply in the functioning of the economy--a concept that has come to inform the actions of central banks worldwide.
Milton Friedman (1912-2006) was an American economist, statistician, a professor at the University of Chicago, and the recipient of the Nobel Memorial Prize in Economic Sciences (1976). Among scholars, he is best known for his theoretical and empirical research, especially consumption analysis, monetary history and theory, and for his demonstration of the complexity of stabilization policy. He was an economic advisor to U.S. President Ronald Reagan. Over time, many governments practiced his restatement of a political philosophy that extolled the virtues of a free market economic system with little intervention by government. As a leader of the Chicago school of economics, based at the University of Chicago, he had great influence in determining the research agenda of the entire profession. Milton Friedman's works, which include many monographs, books, scholarly articles, papers, magazine columns, television programs, videos, and lectures, cover a broad range of topics of microeconomics, macroeconomics, economic history, and public policy issues.
The Economist described him as "the most influential economist of the second half of the 20th century…possibly of all of it".
Friedman was originally a Keynesian supporter of the New Deal and advocate of government intervention in the economy. However, his 1950s reinterpretation of the Keynesian consumption function challenged the basic Keynesian model. At the University of Chicago, Friedman became the main advocate for opposing Keynesianism. During the 1960s he promoted an alternative macroeconomic policy known as "monetarism". He theorized there existed a "natural rate of unemployment" and he argued the central government could not micromanage the economy because people would realize what the government was doing and change their behavior to neutralize such policies. He rejected the Phillips Curve and predicted that Keynesian policies then existing would cause "stagflation". Friedman's claim that monetary policy could have prevented the Great Depression was an attempt to refute the analysis of Keynes, who argued that monetary policy is ineffective during depression conditions, and that large-scale deficit spending by the government is needed to decrease mass unemployment. Though opposed to the existence of the Federal Reserve, Friedman argued that, given that it does exist, a steady, small expansion of the money supply was the only wise policy, and he warned against efforts by a treasury or central bank to do otherwise.
Influenced by his close friend George Stigler, Friedman opposed government regulation of many types. He once stated that his role in eliminating U.S. conscription was his proudest accomplishment, and his support for school choice led him to found The Friedman Foundation for Educational Choice. Friedman's political philosophy, which he considered classically liberal and libertarian, emphasized the advantages of free market economics and the disadvantages of government intervention and regulation, strongly influencing the opinions of American conservatives and libertarians.
In his 1962 book Capitalism and Freedom, Friedman advocated policies such as a volunteer military, freely floating exchange rates, abolition of medical licenses, a negative income tax, and education vouchers. His books and essays were well read and were even circulated illegally in Communist countries.
Most economists during the 1960s rejected Friedman's methodology, but since then they have had an increasing international influence (especially in the USA and Britain). Some of his laissez-faire ideas concerning monetary policy, taxation, privatization and deregulation were used by governments, especially during the 1980s. His monetary theory has had a large influence on economists such as Ben Bernanke and the Federal Reserve's response to the financial crisis of 2007–2010.
Anna Jacobson Schwartz
Anna Jacobson Schwartz (born November 11, 1915) is an economist at the National Bureau of Economic Research in New York City, and according to Paul Krugman "one of the world's greatest monetary scholars". She is best known for her collaboration with Milton Friedman on A Monetary History of the United States, 1867–1960 which laid a large portion of the blame for the Great Depression at the door of the Federal Reserve. She is a past president of the Western Economic Association (1988).