A Monetary History of the United States, 1867-1960 - Milton Friedman & Anna Jacobson Schwartz

"The contraction shattered the long-held belief, which had been strengthened during the 1920’s, that monetary forces were important elements in the cyclical process and that monetary policy was a potent instrument for promoting economic stability. Opinion shifted almost to the opposite extreme, that “money does not matter”; that it is a passive factor which chiefly reflects the effects of other forces; and that momentary policy is of extremely limited value in promoting stability. The evidence summarized in the rest of this chapter suggests that these judgments are not valid inferences from experience. The monetary collapse was not the inescapable consequence of other forces, but rather a largely independent factor which exerted a powerful influence on the course of events. The failure of the Federal Reserve System to prevent the collapse reflected not the impotence of monetary policy but rather the particular policies followed by the monetary authorities and, in smaller degree, the particular monetary arrangements in existence."

-Milton Friedman & Anna Jacobson Schwartz

Everyone who has been in the business of economics for a while knows that all data released before 1980 is pure crap.

So, why read a book as ambitious as A Monetary History of the United States, which pretends to tell the story of money (nothing less) between 1867 and 1960?

A Monetary History is more than data gathering -though the data part of the book is amazing even for today's standards: the authors actually devote around 100 pages to explain how they re-built the time series of US money stock. Also, Friedman and Schwartz provide the most exhaustive and comprehensive account of the Great Depression -for which they blame the Federal Reserve. Friedmand and Schwartz argue that the Fed should have lowered interest rates in order to provide the financial sector with some oxygen, which is akin to what Ben Bernanke and his team at the Fed did in 2008 -though Anna Schwarts has publicly disagreed with the Fed since 2008 (here & here; the two links are just amazing).  

But this book is still worth reading because throughout its pages the authors set the basis of monetarism, the theoretical basis upon which central banking rests today. Shortly, monetarism argues that inflation is a phenomenon related with the stock of money (more money means more inflation and vice versa). This is a theoretical proposition that even neo-keynesians accept today.

Sadly, A Monetary History is hard to understand. Friedman and Schwartz wrote the book as a research project to be distributed among experts, and it has remained so since its release in 1973. But that's not the authors' fault, but the education system's, which has been unable to promote economic and financial literacy among citizens.

A preview of A Monetary History is available here.

And here's Milton Friedman explaining the 1929 crisis. In this video, Friedman also discusses Keynesianism.