Money Mischief

National Review, August 3, 1992 by Alan Reynolds

Thanks to Christina Romer's new monthly index of industrial production, we know that the only serious drop in manufacturing output in the 1892-96 period was during late 1892 and early 1893. It is the drop in farm prices, not urban unemployment, that led to Bryan's promise to make money rain upon the nation's farms. Farm production did not fall in the years leading up to 2896, but instead soared. Indeed, huge increases in the supply of grain and cotton are at least part of the explanation of why farm prices fell far more rapidly than prices of nonfarm goods. The huge increase in agricultural output also explains why the primitive old indexes of U.S. wholesale prices for the 1890s, constructed from newspaper reports on raw commodities, appear to indicate a more rapid fall than in Britain, where farm goods accounted for a smaller share of the index. It is hard to believe that U.S. and British deflation rates for traded goods really differed for several years, since both countries were on the same gold standard.

Despite such quibbles, there is no question that Friedman's meticulous re-examination of this turning point in U.S. history has much to teach us. Personally, my own urban bias is still toward McKinley and gold in 1896, despite his nasty 1890 tariff law, but then I'm fond of Coolidge, too. On the other hand, Friedman's case for keeping the silver dollar back in 1873 is quite enticing. Just imagine how little inflation we would have had in recent years if a silver dollar could still be bought for a paper dollar.

This is another in a long series of trail-blazing books by Milton Friedman. How often do we get a chance to read something new from one of the half-dozen most influential economists who ever lived? Money Mischief will enthrall anyone interested in money or history, which ought to include just about everyone.