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A Monetary History of the United States, 1867-1960

A Monetary History of the United States, 1867-1960

Copyright Date: 1963
Pages: 888
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  • Book Info
    A Monetary History of the United States, 1867-1960
    Book Description:

    Writing in the June 1965 issue of theEconomic Journal, Harry G. Johnson begins with a sentence seemingly calibrated to the scale of the book he set himself to review: "The long-awaited monetary history of the United States by Friedman and Schwartz is in every sense of the term a monumental scholarly achievement--monumental in its sheer bulk, monumental in the definitiveness of its treatment of innumerable issues, large and small . . . monumental, above all, in the theoretical and statistical effort and ingenuity that have been brought to bear on the solution of complex and subtle economic issues."

    Friedman and Schwartz 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. In their influential chapter 7,The Great Contraction--which Princeton published in 1965 as a separate paperback--they address the central economic event of the century, the Depression. According to Hugh Rockoff, writing in January 1965: "If Great Depressions could be prevented through timely actions by the monetary authority (or by a monetary rule), as Friedman and Schwartz had contended, then the case for market economies was measurably stronger."

    Milton Friedman won the Nobel Prize in Economics in 2000 for work related toA Monetary Historyas well as to his other Princeton University Press book,A Theory of the Consumption Function(1957).

    eISBN: 978-1-4008-2933-0
    Subjects: Economics

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-xx)
  3. Preface
    (pp. xxi-2)
    Milton Friedman and Anna Jacobson Schwartz
  4. CHAPTER 1 Introduction
    (pp. 3-14)

    This book is about the stock of money in the United States. It traces changes in the stock of money for nearly a century, from just after the Civil War to 1960, examines the factors that accounted for the changes, and analyzes the reflex influence that the stock of money exerted on the course of events.

    We start with 1867 because that is the earliest date at which we can begin a continuous series of estimates of the stock of money in the United States. When the National Banking Act was passed during the Civil War, it was believed that...

  5. CHAPTER 2 The Greenback Period
    (pp. 15-88)

    The Period from the end of the Civil War to the resumption of gold payments in 1879 is of unusual interest to the student of money. These were the formative years of the National Banking System and, more generally, of a banking structure that was to remain largely unchanged until the establishment of the Federal Reserve System.

    The monetary standard of the period had unique features, some not to recur for many decades, others not at all. It was a fiduciary standard under which no agency of the government was committed to selling gold at a fixed price to all...

  6. CHAPTER 3 Silver Politics and the Secular Decline in Prices, 1879-97
    (pp. 89-134)

    The Return of the United States to the gold standard in 1879, at a time when the most important nations with which it traded were also on a gold standard, in principle inverted the role of the stock of money. Under the prior flexible exchange rate system, the stock of money was, or could be, an independent variable controlled by domestic considerations. The major channel of influence was from the stock of money to the level of money income to the level of prices, and thence to the rate of exchange between the dollar and other currencies, though undoubtedly some...

  7. CHAPTER 4 Gold Inflation and Banking Reform, 1897-1914
    (pp. 135-188)

    Prices in the United States rose between 40 and 50 per cent from 1897 to 1914: nearly 50 per cent or at the average rate of 2½ per cent per year according to the wholesale price index, 40 per cent or at the average rate of 2 per cent per year according to the implicit index used to deflate net national product (see Chart 13). The rise brought prices in 1914 just about back to the level reached in 1882 at the peak of the immediate postresumption expansion.

    This price behavior is probably unique in the history of the United...

  8. CHAPTER 5 Early Years of the Federal Reserve System, 1914-21
    (pp. 189-239)

    Enacted in years of relative calm, the Federal Reserve Act had its first trial in years of economic turmoil. The widespread abandonment or relaxation of the gold standard accompanying World War I made the circumstances under which the act came into effect very different from those anticipated by its framers. Further alterations in the money and banking structure were produced by legislative enactments designed to adapt the System to wartime service.

    These changes in the monetary and banking structure, sketched in section 1, contributed mildly to the more than 45 per cent increase in the U.S. stock of money which...

  9. CHAPTER 6 The High Tide of the Reserve System, 1921-29
    (pp. 240-298)

    The period from 1921 through 1929 is of especial interest for our purposes on a number of counts.

    (1) It was characterized by fairly rapid economic growth without major contractions. Regarded at the time as a “new era,” it seemed even more Elysian in retrospect during the major contractions that succeeded it.

    (2) Developments in industry and finance modified the role of commercial banks. The character and distribution of bank assets changed markedly over the decade. Many banks engaged in side lines in addition to making loans and investments—principally fiduciary functions and the underwriting and distributing of securities. These...

  10. CHAPTER 7 The Great Contraction, 1929-33
    (pp. 299-419)

    The contraction from 1929 to 1933 was by far the most severe businesscycle contraction during the near-century of U.S. history we cover and it may well have been the most severe in the whole of U.S. history. Though sharper and more prolonged in the United States than in most other countries, it was worldwide in scope and ranks as the most severe and widely diffused international contraction of modern times. U.S. net national product in current prices fell by more than one-half from 1929 to 1933; net national product in constant prices, by more than one-third; implicit prices, by more...

  11. CHAPTER 8 New Deal Changes in the Banking Structure and Monetary Standard
    (pp. 420-492)

    The New Deal period offers a striking contrast in monetary and banking matters. On the one hand, monetary policy was accorded little importance in affecting the course of economic affairs and the policy actually followed was hesitant and almost entirely passive. On the other hand, the foundations of the American financial structure and the character of the monetary standard were profoundly modified. Both developments were direct outgrowths of the dramatic experiences of the preceding years. The apparent failure of monetary policy to stem the depression led to the relegation of money to a minor role in affecting the course of...

  12. CHAPTER 9 Cyclical Changes, 1933-41
    (pp. 493-545)

    As we have seen, severe contractions tend to be succeeded by vigorous rebounds. The 1929-33 contraction was no exception. Net national product rose no less than 76 per cent in current prices and 59 per cent in constant prices from 1933 to the next cyclical peak in 1937, or at average rates of growth of 14 and 12 per cent per year, respectively (see Chart 37). These are extraordinary rates of growth. Two other four-year periods show larger rises in income in current prices, but both are wartime periods, one, terminating just after World War I, the other, during World...

  13. CHAPTER 10 World War II Inflation, September 1939-August 1948
    (pp. 546-591)

    The outbreak of war in Europe in September 1939 ushered in a period of inflation comparable to the inflations which accompanied the Civil War and World War I, though more protracted than either. By the postwar price peak nine years later (August 1948), wholesale prices had more than doubled, the implicit price deflator had somewhat less than doubled, the stock of money had nearly tripled, and money income had multiplied more than two-and-a-half-fold (see Chart 45). As this comparison indicates, velocity on net fell over the period. After an initial rise to 1942, it fell sharply to 1946 and then...

  14. CHAPTER 11 Revival of Monetary Policy, 1948-60
    (pp. 592-638)

    The outstanding monetary feature of the twelve years after the price peak in 1948 is the unusually steady rate of growth of the money stock (see Chart 52). The period is comparable in this respect to the three earlier periods of relative stability that we singled out above—1882-92, 1903-13, and 1923-29. As in those earlier periods, relative stability of the rate of growth of the money stock was accompanied by relative stability of the rate of growth of output and the rate of change in prices (see Chart 52 and Table 25).¹ The stability of the rate of change...

  15. CHAPTER 12 The Postwar Rise in Velocity
    (pp. 639-675)

    For the student of money, the most distinctive feature of the postwar period and the one that has attracted most discussion and comment is the sharply rising trend in the velocity of money noted in section 1 of Chapter 11 and recorded in Chart 52. From an all-time low of 1.16 in 1946, velocity of money rose to a postwar high of 1.69 in 1960, a level that had not been equaled since 1930 except for the early war years 1942 and 1943. The contrast with earlier experience is sharp.As far back as our figures go, the general tendency is...

  16. CHAPTER 13 A Summing Up
    (pp. 676-700)

    The monetary history of the United States during the century since the Civil War has been colorful and varied. In tracing its tortuous course, we have found it necessary to delve into domestic politics, international economic arrangements, the functioning of large administrative organizations, the role of personality in shaping events, and other matters seemingly far removed from the counting house. The varied character of U.S. monetary history renders this century of experience particularly valuable to the student of economic change.He cannot control the experiment, but he can observe monetary experience under sufficiently disparate conditions to sort out what is common...

  17. APPENDIX A Basic Tables
    (pp. 703-775)
  18. APPENDIX B Proximate Determinants of the Nominal Stock of Money
    (pp. 776-808)
  19. Director's Comment
    (pp. 809-814)
  20. Indexes
    (pp. 815-860)
  21. Back Matter
    (pp. 861-861)