American Economic Association

The Chicago Monetarist TraditionAuthor(s): David LaidlerSource: The Journal of Economic Perspectives, Vol. 13, No. 3 (Summer, 1999), pp. 240-241Published by: American Economic AssociationStable URL: http://www.jstor.org/stable/2647004 .

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240 Journal of Economic Perspectives

Women at NBER: A Correction

In my article "Two Cheers for CSWEP?" (Fall 1998, pp. 185-189), relying perhaps too confi- dently on earlier impressions, I included the National Bureau of Economic Research as among those institutions with grossly sub-par numbers of women economists. Martin Feld- stein, NBER President, has written to me saying that this characterization does not apply to the current situation. I can do no better than to quote his letter:

More than one-fourth of the Faculty Re- search fellows of the NBER (non-tenure fac- ulty members) are women. Ten percent of the Research Associates (tenured faculty members) are women. I understand the fol- lowing to be the relevant comparative facts:

Among the 106 departments that report to the AEA's Universal Academic Question- naire for 1997-98, 26 percent of the assistant professors were female, the same percentage as among NBER Faculty Research Fellows.

Of the full time tenured or tenure track (sic) faculty at Ph.D. institutions replying to the UAQ eight percent were women, less than the percentage of women among NBER Research Associates.

It would certainly appear that "grossly sub- par" is an inaccurate characterization of the cur- rent situation in the NBER. One might still say, of course, that the "par" they have achieved is one that needs improvement. Nevertheless, they are to be congratulated for coming this far, and I regret the inaccuracy.

Barbara R. Bergmann American University and University of Maryland Washington, D.C., and College Park, Maryland

The Chicago Monetaist Tradition

George Tavlas (Fall 1998, pp. 211-222) has presented arguments for the existence of close links between the work of Milton Friedman and an earlier "Chicago Tradition" that in turn was firmly rooted in the quantity theory of money. Though I agree with Tavlas that a Chicago Tra- dition existed, and that Friedman's work is, in some respects, related to it, these matters are a

good deal more complicated than he suggests, as the following examples demonstrate.

Tavlas (p. 214) is right that Paul Douglas (1927) was responsible for introducing into the Chicago Tradition the idea that money creation undertaken to finance fiscal measures would be a particularly effective expansionary policy. Douglas, however, did not derive this idea from an application of the quantity theory, but rather from the at-that-time well-known undercon- sumptionist analysis of William Foster and Wad- dill Catchings (for example, 1923). Douglas's later (1933) advocacy of such policies was also based on an underconsumptionist approach, rather than the quantity theory, and by that time he was supplementing the case for public works spending with reference to their expansionary multiplier effects, as expounded by Keynes in The Means to Prosperity (1933).

Douglas was, of course, something of an outlier among Chicago monetary economists in the 1930s, but Tavlas is again right in stressing that many of the latter shared his lack of faith in the expansionary powers of orthodox monetary policy implemented through open market operations. He is also right (p. 219) that, on the matter of the powers of traditional monetary measures, Fried- man's later analysis (as in Friedman and Schwartz, 1963) differs from that of the earlier Chicago Tra- dition. He might, however, have mentioned that Friedman and Schwartz's position, particularly as it appertained to the Great Contraction, was largely anticipated by Lauchlin Currie (1934), as Karl Brunner (1968) long ago pointed out. As Currie (1934, p. 147), at that time an instructor at Har- vard, remarked, "Much of the current belief in the powerlessness of the reserve banks appears to arise from a complete misreading of the monetary his- tory of 1929-32. It is generally held that the re- serve administration strove energetically to bring about expansion throughout the depression but that contraction continued despite its efforts. Ac- tually the reserve administration's policy was one of almost complete passivity and quiescence."

In the light of the strong similarity between Currie's views on this matter and those of Fried- man and Schwartz, it is interesting to note that, as can be documented from Currie's own writ- ings, he arrived at them under the influence of Allyn Young, Ralph Hawtrey, and Keynes of the (1930) Treatise on Money. Currie's analysis of the contraction owed essentially nothing to a Fish- erian version of the quantity theory.

Evidently, the relationships among Fried- man's monetarist analysis, the Chicago Tradi- tion of the 1930s, and the quantity theory of money, are a good deal more complicated and

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Correspondence 241

hard to pin down than Tavlas suggests. As a starting point, a perusal of published work by Karl Brunner (1968), Thomas Humphrey (1971), Roger Sandilands (1990), Frank Steindl (1996) and myself (Laidler 1993, 1998), will re- veal this in much more detail.

David Laidler University of Western Ontario London, Ontario, Canada

References

Brunner, K. 1968. "On Lauchlin Currie's con- tribution to Monetary Theory," in The Supply and Control of Money in the United States. Currie, L., ed. 1934 [1968]. Cambridge MA: Harvard University Press. Reprinted by Russell and Russell, New York.

Currie, L. 1934 [1968]. The Supply and Control of Money in the United States. Cambridge MA: Har- vard University Press. Reprinted by Russell and Russell, New York.

Douglas, P. H. 1927. "The Modern Technique of Mass Production and its Relation to Wages." Proceedings of the Academy of Political Science. July, 12:3, pp. 17-42.

Douglas, P. H. 1933. Collapse or Cycle? Chicago: American Library Association.

Foster, W. T. and W. Catchings. 1923. Money. Boston: Houghton Mifflin.

Friedman, M. and A. J. Schwartz. 1963. A Mon- etary History of the United States 1867-1960. Prince- ton NJ: Princeton University Press.

Humphrey, T. M. 1971. "The Role of Non- Chicago Economists in the Evolution of the Quantity Theory in America." Southern Economic Journal. July, 38, pp. 238-53.

Keynes, J. M. 1930. A Treatise on Money. Lon- don: Macmillan.

Keynes, J. M. 1933. The Means to Prosperity. New York: Harcourt Brace and Co.

Laidler, D. 1993. "Hawtrey, Harvard and the Origins of the Chicago Tradition." Journal of Po- litical Economy. December, 101, pp. 1068-1103.

Laidler, D. 1998. "More on Hawtrey, Harvard and Chicago." Journal of Economic Studies. 25, pp. 4-16.

Sandilands, R. 1990. The Life and Political Econ-

omny of Lauchlin Cunrie: New Dealer, Presidential Ad- visor and Development Economist. Durham NC: Duke University Press.

Steindl, F. G. 1996. Monetary Interpretations of the Great Depression. Ann Arbor MI: Univ. of Michigan Press.

Response from George S. Tavlas

My ]EP paper demonstrated the relationship between Milton Friedman's monetary views and the contributions of the early 1930s Chicago tradition. The paper corrected the misleading characterization created by, among others, the writing of Laidler (1993, p. 1070) that "optimism about the power of monetary policy ... arrived rather late in the day in Chicago." It is reassuring to have Laidler write: "I agree with Tavlas that a Chicago Tradition existed, and that Friedman's work is, in some respects, related to it . . ." Oh viously, matters are more complicated than he once argued.

In another paper I dealt with the views of Currie, who was at Harvard in the early 1930s, Young, who left Harvard in 1927 and died in early 1929, and Hawtrey (Tavlas, 1997). That paper refuted Laidler's (1993, p. 1078) claim that a small group of Harvard economists pro- duced "outstanding work in monetary econom- ics" as late as 1934. Currie certainly made impor- tant contributions in the monetary area during the early 1930s, but he was a lone wolf at Har- vard. As I documented, he began advocating deficit spending during this period. Reflecting back on his years at Harvard, Currie (1978, p. 541) noted that his advocacy of deficit spend- ing "had to be done surreptitiously. Even so, the heresy became known and I fell from grace and was reprimanded by the Chairman of the De- partment." Unlike the Chicagoans, Currie did not provide a quantity theory rationale for his advocacy of budget deficits.

Laidler puts a lot of weight on the undercon- sumptionist views of Douglas. But Douglas was, above all, a quantity theorist. After he became a U.S. Senator in 1948, he played a pivotal role in the famous "accord" reached between the Fed- eral Reserve and the Treasury. Prior to the ac- cord, the Fed had been pegging interest rates and losing control over the quantity of money and inflation. In his autobiography In the Fullness of Time, Douglas (1972, p. 380) called the Fed's actions "a vindication of the quantity theory of money, supposedly known to every student of elementary economics."

I agree with Laidler that the issue of the de- velopment of monetary economics during the

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