The death of Anna Schwartz has been marked with reverential obituaries. Her contribution to economics was making sense of historical facts to offer a guide to what should be done today. Posterity will know her as the co-author, with Milton Friedman, of Monetary History of the United States, 1867–1960, which revolutionized our understanding of the Great Depression. The pair concluded that, contrary to conventional wisdom, the slump was caused by the Federal Reserve not pumping enough money into the economy.
From this Friedman and Schwartz led a monetarist revolution that claimed that inflation, which had been thought to be caused by either insufficient supply or too much demand, was in all cases and solely caused by too large a supply of money. They led a counterrevolution against Keynesianism, which over three booming decades had driven economies into stagflation – a marriage of runaway inflation and stagnant growth that Keynesians were at a loss to explain or cure.
Although Friedman took much of the credit for the new orthodoxy, and won the Nobel Prize in 1976 for his efforts, Schwartz was more than the midwife of monetarism – she was an equal partner in its conception. When asked why she had not been awarded credit equal to the extrovert Friedman, she modestly responded: “I’m not a media person.” Like the winemaker Luigi Rossi, whose name appears second on Martini bottles, she was an important, if largely silent, partner. Just as no one ever asks for a dry Rossi, so few today remember Schwartz.
Her strength was in her strict empirical approach. A well-ordered social scientist who for more than 70 years was the mainstay of the National Bureau of Economic Research, she amassed facts, considered the evidence and made her deductions. In an age when faith-based economics has taken hold, hers was a clear voice in grasping what went on during the financial meltdown and freeze of 2008-09 and in the efforts by government to put things right.
Although Ben Bernanke was a great admirer of Schwartz, and famously said, at Friedman’s 90th birthday party: “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,” she did not return the compliment. In an interview given during the dark heart of the financial crisis, October 2008, Schwartz was unsympathetic to Bernanke, suggesting that just because he understood the Great Depression didn’t mean he knew what to do to avoid a repeat. She thought his loose money policy would foster hyperinflation.