ABSTRACT
When I was introduced in graduate school to the literature on the history of financial markets and monetary policy, the state of the art was two books, Friedman and Schwartz’s Monetary History of the United States and Kindleberger’s The World in Depression. Friedman and Schwartz organized their analysis around carefully constructed time series for the principal monetary aggregates.1 They anticipated and, to a very considerable extent provoked, the subsequent literature documenting the association of monetary stability with macroeconomic stability and showed how this focus could illuminate the development of monetary and financial policies. They demonstrated how a parsimonious set of money supply measures could provide a rigorous framework for historical analysis. Two things were missing from Friedman and Schwartz’s analysis. One was the financial market micro-structure providing the transmission belt from money to output. The banking system and bank failures were there but only in the aggregate. And the financial system more broadly was underspecified. Also missing was an encompassing analysis of how monetary policies in one country interacted with those of the rest of the world. Friedman and Schwartz’s monetary history was US monetary history by design. Kindleberger, in contrast, provided a detailed financial history of the interwar years.2 The workings of financial markets giving rise to speculative dynamics and problems of liquidity and confidence were at the center of his analysis. A lively narrative showed how financial disturbances arose and how the structure of financial markets shaped their effects. Kindleberger gave center stage to investor dynamics as a source of shocks and to financial-market micro-structure as a transmission belt. His focus on financial spillovers led him to emphasize international linkages and to adopt a global perspective.3
