How Friedman and Schwartz Became Monetarists

Abstract

During the early‐1940s, both Milton Friedman and Anna Schwartz downplayed the role of money in the economy. By the mid‐1950s, they had not only become what later were called monetarists, but the findings from their joint work defined monetarism. The key factor underlying the change in their views was what they learned from their study of U.S. historical experience, especially their empirical confirmation of the Fed's role in the Great Depression. Here, the influence of Clark Warburton on Friedman's thinking loomed large. We document Friedman's advocacy of the constant‐money‐growth rule as an outgrowth of his and Schwartz's empirical research.

On the controversy over the origins of the Chicago Plan for 100 percent reserves

“…33 Hart's (1935) support of the scheme was lukewarm. Friedman's views on the 100 percent scheme were discussed by Nelson (2013; and Lothian and Tavlas (2018). Tobin (1985) also supported the 100 percent reserves scheme.…”

Information and expectations in policy-making: Friedman’s changing approaches to macroeconomic dynamics

“…Nelson (2009) also identifies significant elements of Friedman's Monetarism well before his paper from 1956. 3 Lothian and Tavlas (2018) make the same case in arguing that Friedman, but also Schwartz, ceased holding Keynesian-type views in the middle of the 1940s. 4 In our view, there is a more balanced view regarding Friedman's early Monetarism in the late 40s.…”

“…It is worth mentioning here that Warburton plays a critical role. As shown by Lothian and Tavlas (2018) as well as by Tavlas (2019), Warburton is much more than a mere forerunner of Friedman's monetarism. In fact, "Warburton had influenced Friedman's thinking on the effectiveness of open-market operations in offsetting the effects of banking crises, on the monetary origins of the Great Depression and, possibly, on monetary rules" (Lothian and Tavlas 2018, p. 760).…”

“…Here Friedman's appraisal of expectations tends to be of 5 "Under existing circumstances, when many prices are moderately rigid, at least against declines, the monetary and fiscal framework described above cannot be expected to lead to reasonably full employment of resources, even though lags in other kinds of response are minor." (Friedman [1948] 1953, p. 143) 6 Lothian and Tavlas (2018) and Tavlas (2019) build upon work by Bordo andSchwartz (1979, 1983) and by Cargill (1979), who already noticed the pioneering work of Warburton; they present him as a forerunner who anticipated Friedman's thinking, but who did not influence him. secondary importance.…”

“The Initiated”: Aaron Director and the Chicago Monetary Tradition

“…Hayek published essentially nothing on monetary policy in the 1940s and 1950s. SeeSelgin (1999) andWhite (1999).31 For documentation, seeLothian and Tavlas (2018) andNelson (2020).32 The lecture is available at the Hoover Institution Archives as a sound recording. I have transcribed the lecture (word-for-word) into written form and made it available in the online appendix.…”