Anna Schwartz died today at age 96. She is best known as the co-author (with Milton Friedman) of “A Monetary History of the U.S.: 1860-1970” a book that is a must-read for anyone who claims to understand monetary economics. As is so often the case with the Nobel committees, Ms. Schwartz was ignored when Mr. Friedman was awarded his Nobel Prize in economics. This is to the everlasting shame of the Nobel economics committee.
Ms. Schwartz was a true believer in markets, perhaps even more than Mr. Friedman. In an interview with Barron’s magazine in 2008 she said,
“”If I regret one thing, it’s that Milton Friedman isn’t alive to see what’s happening today,” she told the magazine. Referring to Bernanke, she said, “It’s like the only lesson the Federal Reserve took from the Great Depression was to flood the market with liquidity. Well, it isn’t working.”
In various interviews she analyzed the current difficulties with great aplomb. The Fed is fighting the Great Recession as if it was 1930 all over again. But it isn’t. Today the problem is “toxic assets” not a lack of liquidity. Toxic assets are those assets on bank balance sheets that have no market price because no one can figure out what the hell they are. Terrific. In 1930 the problem was liquidity. Today it is not. Mr. Bernanke could do worse than pay attention to the words of Ms. Schwartz.
We have lost a terrific economist. The world is worse off today than it was yesterday.