In a retrospective on Milton Friedman, Paul Krugman is critical of Friedman's remarks on monetary base changes in the early years of the Great Depression. Krugman emphasizes that the monetary base did increase by about one billion dollars from 1929–1933, thereby implying the Fed was pursuing an expansionary policy. The purpose of this comment is to clarify monetary base analysis in this period. More specifically, two common misconceptions in regard to the monetary base are discussed: first, that changes in the base are a reliable indicator of the stance of Fed policy, and secondly that the Federal Reserve exercises absolute control over changes in the base.
FriedmanMilton and SchwartzAnna J., A Monetary History of the United States, 1867–1960. (Princeton University Press for the National Bureau of Economic Research), 1963.
2.
KrugmanPaul, “Who Was Milton Friedman?”, the New York Review of Books, February 15, 2007, 27–30.
3.
KrugmanPaul, “Response to Nelson and Schwartz”, The Journal of Monetary Economics, 55, (2008), 857–860.
4.
NelsonEdward and SchwartzAnna J., “The Impact of Milton Friedman on Modern Monetary Economics: Setting the Record Straight on Paul Krug-man's “Who was Milton Friedman?”, The Journal of Monetary Economics, 55, (2008), 835–856.
5.
RamrattanLall and MichaelSzenberg, “Memorializing Milton Friedman: A Review of His Major Works, 1912–2006”, The American Economist, 52(1) (Spring 2008), 23–38.
6.
StaufferRobert, “Back to Basics: Reserve Requirements and Money Stock Changes, 1929–1936”, The American Economist, 44(1) (Spring 2000), 62-69
