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Chapter 7: On the Origins of A Monetary History
Hugh Rockoff* Introduction Milton Friedman and Anna J. Schwartz’s A Monetary History of the United States (1963a) is arguably the most important book in economics since The General Theory (Keynes 1936).1 It has inspired and informed an enormous amount of research. Even footnotes have produced voluminous and contentious literatures.2 This chapter explores some of the work that influenced the Monetary History.3 It shows that the ideas of several Chicago economists – Henry Schultz, Henry Simons, Lloyd Mints and Jacob Viner – left clear marks. However, it argues that the most important influence may have been Wesley Clair Mitchell and his classic book Business Cycles (1913). Mitchell, and the National Bureau of Economic Research (NBER or the Bureau), provided the methodology, in particular the emphasis on long accurate time series of monthly data and the analysis of the effects of specific variables on the business cycle. Mitchell’s book, as I try to show below, contained a preliminary exploration of the issues examined in more detail, and for a longer historical period, in the Monetary History. Mitchell concluded that money played an independent, predictable and important role in shaping the business cycle. Friedman and Schwartz’s work, although it differed on several particulars, most importantly on the role of bank-lending policies in the transmission of monetary impulses, strongly reinforced Mitchell’s basic conclusions. Perhaps the most important reason for exploring the origins of the Monetary History is that it facilitates understanding. Although the Monetary History is enormously influential, and although its analyses of particular events...
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