Remembering Anna Schwartz, whose work led to understanding monetary policy
The economics profession recently lost one of its most respected and influential members. Anna Jacobson Schwartz died at age 96. Throughout her career, she made significant contributions to our understanding of how policy, especially monetary policy, works.
Anna succeeded in a male-dominated profession. After graduating from Barnard College at age 18, she worked for the Agriculture Department and, in 1941, moved to the National Bureau of Economic Research in New York City. (Started in the early part of the last century, the NBER is a privately funded research organization made up of economists from around the country. It is perhaps best known as the official dating agency of U.S. business cycles.)
At the NBER, she was introduced to Milton Friedman. Anna already had gained academic recognition for her work on European financial history, a massive undertaking that stands the test of time as a truly significant contribution. After many years of collaboration, in 1963 they published the massive and highly influential tome "The Monetary History of the United States: 1867-1960."
This iconic book accomplished two major objectives. First, written before computerized data sets and Google, Anna’s expertise in tracking down obscure financial and banking data for the United States made the project possible. (The effort was so complicated that a separate book was published dealing only with the statistical methods and data sources used.) These efforts provided future researchers with consistent historical data on the money supply of the United States and a way for future researchers to test competing theories about monetary policy.
Perhaps the best known contribution of their book was that it demonstrated the importance of the supply of money in explaining economic activity. Schwartz and Friedman showed that changes in the behavior of money supply accounts for much of the observed short-run changes in output, and long-run changes in inflation. Since the Fed controls the money supply (as well as short-term interest rates) policy missteps can lead to significant economic events.
Schwartz and Friedman focused on the Great Depression. Using their data and incredible amounts of historical documentation — again Anna’s expertise — they showed that the Great Depression was largely due to bad monetary policy. The results of their research forever changed the way economists view the cause of recessions. The analysis was so influential that in 2002 then Fed Governor Ben Bernanke said “I would like to say to Milton and Anna: Regarding the Great Depression, you’re right, we [the Fed] did it. We’re very sorry, but thanks to you we won’t do it again.”
In the early 1980s, Anna chaired the ill-fated U.S. Gold Commission. She knew that the U.S. was not going to return to a gold standard. With inflation coming off double digit highs, Anna used the public platform to argue for a low-inflation policy. In this venture she helped sway opinion: monetary policy since the 1980s has been attuned to keeping inflation low and predictable. This policy shift set the foundation for the longest economic expansion in U.S. history, which ran from 1984 through 1999.
At an age when her contemporaries had long retired, Anna regularly participated in academic conferences to discuss others’ research and present her own. At the onset of the financial crisis she wrote in the Wall Street Journal that Fed policy was misguided and too reminiscent of actions taken in the 1930s. Just recently she finished a book on the history of U.S. foreign exchange policy with her long-time collaborator, Rutgers University professor Michael Bordo.
I imagine that Anna would be appalled by the time spent memorializing her life and accomplishments. She undoubtedly would suggest that the time be spent productively, studying the economy and figuring out how to make better policy choices.