Home > Business Cycles, Monetary Policy, Recession > Anna Schwartz, 1915 – 2012

Anna Schwartz, 1915 – 2012

Anna Schwartz was an economist who was not well known to the public. Ironically, Schwartz, who recently died (the New York Times has provided an excellent obituary), was a coauthor of one of the most important scholarly studies ever produced by the economics profession.

Schwartz, along with her coauthor the late Milton Friedman, produced the treatise A Monetary History of the United States. This scholarly work, published in 1963, provided what to this day is the basic framework for our understanding of the banking system and its interaction with central banks. But more importantly, Friedman and Schwartz provided the explanation for the origin of the Great Depression, the single event which gave rise to the discipline of macroeconomics, the area of study within the social science of economics which tries to explain, among other things, the origins of business cycles.

It would be hard to overstate the importance of this research because it provided the explanation of what caused the most traumatic cyclical event in U.S. economic history, a contraction so severe that the U.S. unemployment rate rose to nearly twenty five percent of the work force. Friedman and Schwartz convincingly documented the actions taken by the Federal Reserve which caused a recession to deteriorate into the Great Depression. Their explanation of the cause of the Depression has never been seriously challenged by subsequent economic research and thus remains today as the economics profession’s explanation of the Depression.

More positively, the research of Friedman and Schwartz gives us good reasons to think that the world will never again experience another extreme cyclical contraction. The most recent U.S. recession, beginning in December 2007 and ending in June 2009, could easily have been turned into another Depression if the Federal Reserve had made the same mistakes that it did in the early 1930s. But the proper course of action to be taken by a central bank in recessions is now well understood and the Fed followed the proper course of action to mitigate the recession. While there have been critics of some Fed actions associated with this recession, there is wide agreement among economists that the Fed was right to expand the U.S. money stock in response to the recession which is precisely what the Fed did not do in the early 1930s.

Central banks around the world now know how they should set their policies in recessions and we have Friedman and Schwartz to thank for providing us with this knowledge.

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