Capital in the Twenty-First Century

by Thomas Piketty

Indeed, faith in the stabilizing role of central banking at times seems inversely proportional to faith in the social and fiscal policies that grew out of the same period. This is particularly clear in the monumental Monetary History of the United States published in 1963 by Milton Friedman and Anna Schwartz. In this fundamental work, the leading figure in monetary economics follows in minute detail the changes in United States monetary policy from 1857 to 1960, based on voluminous archival records.19 Unsurprisingly, the focal point of the book is the Great Depression. For Friedman, no doubt is possible: it was the unduly restrictive policy of the Federal Reserve that transformed the stock market crash into a credit crisis and plunged the economy into a deflationary spiral and a depression of unprecedented magnitude. The crisis was primarily monetary, and therefore its solution was also monetary. From this analysis, Friedman drew a clear political conclusion: in order to ensure regular, undisrupted growth in a capitalist economy, it is necessary and sufficient to make sure that monetary policy is designed to ensure steady growth of the money supply.