Monetary History, Bretton Woods, and Banking Crises

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>> John Hartley: This is the Capitalism and Freedom of the 21st Century podcast, where we talk about economics, markets and public policy. I'm Jon Hartley, your host.

Today, I'm joined by Michael Bordo, a monetary historian, professor of economics at Rutgers University. Distinguished Visiting Fellow at the Hoover Institution, and a research associate at the National Bureau of Economic Research, welcome.

>> Michael Bordo: Thank you.

>> John Hartley: Now, Michael, I wanna first get into how you got interested in economics.

You grew up in Montreal, and you also attended McGill. And then you went to the University of Chicago and studied under Milton Friedman for your PhD and had Friedman as your dissertation advisor. And you were also at Chicago during a time when it was blessed with many international economists, many very famous international Canadian monetary economists.

Like Harry Johnson, Bob Mundell, who would win a Nobel Prize later, and very famous for Mundell-Fleming, the trilemma. I'm curious, how did you get interested in monetary economics to begin with, and how did you end up at Chicago?

>> Michael Bordo: Okay, well, I studied economics at McGill. In fact, I did an Honors Economics and Political Science.

And it is a good university, it was even a better university way back when. And they were very strong in economics, I took this honors program. So there were small classes and really smart people and I really got into it. But what got me into economic history and monetary history was the first year we were there, we had to take a course, an introductory course, in economics, but it was economic history, and it was taught by F Cyril James, who was the principal of the university.

And he was a famous British economic historian who was an expert on the Great Depression and specifically the Chicago banking panic of 1932, okay. And he gave this incredible course, and he ended it with the story of what happened in 1931 when the entire international financial system collapsed.

And so I was hooked. And then I went into economics, I did micro, macro, all that stuff, right? And then I went to LSE, the London School of Economics. Back then in the 60s, Canadians, a lot of Canadians went to England. That was part of the deal. So I went there, I had great advisors and great people.

I worked with Bill Phillips, Lord Robbins, okay, and a number of other people, Ed Mishan, who was a former student of Milton Friedman. And so I had a great time at LSE, but I realized I needed to learn some more, that I didn't really have that strong background.

And so I was advised by Mishan, my advisor, to go to Chicago, and I applied. And Harry Johnson, I got in touch with Harry Johnson, who was at Chicago through the Mishan connection, and he just opened up all the doors for me. He got funding, and I went from LSE to Chicago.

And I arrived there, and I was assigned a student advisor, and it's Milton Friedman. I walked into his office, he said, wow, you've got a great background, McGill, LSE, dot, and I just sort of got hooked. I took his courses.

>> John Hartley: What year would this have been?

>> Michael Bordo: This was 1965, so I took Friedman's courses.

I also did economic history with Robert Fogel, and I really liked him. And I did international with Harry, international trade, and Bob Mundell. And Mundell, he just arrived the same time as me, and he was ten years older. And I took his first course, and it was incredible.

I loved it, okay? He was just really, really, really hot, okay? And so I did very well in his course, I took all his courses. Had he come up with the Mundell-Fleming trilemma at this point? So this is 65, yeah, he did, well-.

>> John Hartley: So he'd already worked at the IMF?

 

>> Michael Bordo: His famous papers were already done, okay? I mean, the trilemma thing comes in later, people. That was an interpretation by Dornbusch, okay? Mundell didn't use that term, but Dornbusch is the one that came up with that. So I was influenced by Harry, by Bob Mundell, by Bob Fogel, and by Milton Friedman.

So these were the influences that I had. But I also took courses from Stigler, who was great, and there were some other people, and Anorld Harberger, too. So I had fantastic teachers and I started doing, in a sense, what I did. My dissertation was in monetary history, because one of the best things that came out of Friedman's courses was reading and monitoring history of the United States.

And that's been my Bible ever since and so we had to study it. We pass the footnotes. If you wanted to pass the monetary economics prelim, you had to know that stuff, and I did.

>> John Hartley: Really, that's fantastic.

>> Michael Bordo: Yes.

>> John Hartley: And I mean, that book came out, what, in the 1960s?

 

>> Michael Bordo: It came out in 1963, okay? And it's still the classic, it's the Bible. If you wanna understand the history of the Fed monetary history, that's where you always start. So I worked with Friedman. My dissertation was with Friedman, and Fogel was on my committee. And it was a monetary history thesis which tested Friedman's ideas using historical examples, okay?

So that was my thesis. And then I met Anna Schwartz because I needed data and I got in touch with her, this was my last year at Chicago, and we got on very well. And then I got Milton to, in a sense, arrange for me to go to the NBER for four months to work with Anna to get the data I needed.

 

>> John Hartley: This was when the NBER was in New York.

>> Michael Bordo: It was in New York City and I went there the first year after I started teaching. I had my first teaching job in Canada at Carleton University in Ottawa. And I came down to New York and I worked with Anna all summer, and we hit it off, okay?

And it's like she became my mentor and I started writing papers with her. And she had an assignment to write a paper on a survey on monetary history. She didn't have time to do it all, so she said, look, could you do this? I did it, I put a lot of time into it and it was a big hit.

And then more papers came along, and we started writing stuff together, okay? And we started getting involved in big projects. And so that's the reason why I'm in the United States, because through Anna, I then got invited to Carnegie, Rochester. The conferences in the 70s, and I got-.

 

>> John Hartley: Which were very famous, I mean, at the time.

>> Michael Bordo: Yeah, that was the place to go and so I was there from 77. And I got involved with Bruner and Meltzer, and I met lots of people, I met all the luminaries in economics. John Taylor was there, then Jacob Frankel, Stan Fisher, I was there, I got to know these people.

And then I started working more and more with Schwartz, and then it was like they took a vacuum cleaner to the border and sucked me across, okay? I was a visiting Scholar at the St Louis Fed, and I got an offer to go to the University of South Carolina because one of my classmates from Chicago, Mike Connolly, was there.

And Carleton was great, but I was getting paid peanuts, had a huge teaching load. And so I moved to South Carolina, I had really light teaching load and tripled my salary. And, of course, Carleton, did they match the offer? They just said, bye bye bye, and I left, and I never came back.

But that's what got me it was the Anna Schwartz connection that got me into the United States.

>> John Hartley: Is there a reason why you think Canadians have been so prominent in the international economics field? Canada was the first country to really break away from Bretton Woods and its fixed exchange rate system in the 1950s and floated for a good period over ten years.

And then went back to fixed exchange rates in the 60s, or the Dieffenbach, as it was called. And then they went back to floating after the whole Bretton Woods system broke down in the early 70s. But do you think that there's a reason why, I guess people like Mundell and people like yourself, I guess maybe growing up in Canada, more of an international type lens to things?

I feel like when I grew up in Toronto, that maybe I sort of developed a bit of a sense for international news a little bit.

>> Michael Bordo: Well, I mean, yes, Canada was always the quintessential small open economy. Canada was a small country, I mean, big geographically, but population very small, next to the United States.

And so whatever was going on in the States would affect us, okay? And so Canada had really had to worry about its balance of payments. And so much of international monetary economics was developed in part because of this issue. And so Canadians always thought in terms of international and macro, those two things were tied together and international trade.

Some of the great trade people theorists were Canadians, too, like John Chipman, but there are a whole lot of others, Ron McKinnon from here.

>> John Hartley: Right, another great international thing.

>> Michael Bordo: Ronna Hoover, guy at Stanford guy is Canadian, he came from Alberta, okay?

>> John Hartley: And very famous for coining the whole idea of financial repression.

 

>> Michael Bordo: Right, but also he worked on the dollar standard, and he was really incredible. But it's the Canadian connection, I was good friends with him. So there are a lot of us that did this, and it's just sort of, and the bank of Canada also, they were part of this.

I mean, people who were at the bank had, some of them had studied in the States and in England, and they were thinking the same way. And in a sense, just getting back to your story about the 1950s. So what happened, I'm writing a paper on that right now.

So what happened is Canada joined the Bretton woods System, but the problem was that they picked a parity that was too low. And after World War II, especially at the end of the 40s, there was a huge capital inflow from the United States to Canada, okay? When the Korean war came along, they needed our resources.

So this, what this did was it pushed up, we were on a fixed exchange, the peg, okay? It was a dollar at that time, the parity was a dollar. It pushed up the International Reserves of the Bank of Canada and it was a huge capital inflow, huge increase in reserves and this had a very big inflationary effect.

And so Canada got permission to temporarily leave the Bretton Woods peg and float. But what happened was they were pretty successful at doing it, and the floating exchange rate system, which was an anathema to the Bretton Woods System, it was very successful, okay? So they deep pegged in part because the post World War II capital inflows were causing inflation.

It was an inflation shock from the US. And then they were pressured by the IMF to go back. And there's a whole big story about a governor of the bank of Canada, a guy named James Coyne. He followed too tight a policy in the latter part of the 50s, causing a worse recession in Canada than the US.

And his idea was that he wanted to stop capital inflows. He thought capital inflows a big problem and so he thought the way to do that was to tighten even more. He didn't understand Mendel Fleming. In fact, Mundell wrote his famous paper because of the mistake that Coyne made, okay?

And then what happened? Coyne got fired and there was a big turmoil in Canada. And what happened was they then decided to go back to the pegged exchange trade, and they did so in a very messy way and it was a financial crisis. Canada went back to floating in the 60s, okay?

And whatever was going on in the world, that was terrible, that is the great inflation here in the United States, we imported it, Canada imported it. And so the performance was pretty bad and then again, the shocks coming from the States, okay, were the reason why they went back.

They left it in 1970, because this is the great inflation, okay, it's Arthur Burns. And so Canada left and went on a float. And so it's what drove Canada's decision to float, okay? And really affected Canadian monetary was what was going on in the United States, and it's always been that issue, okay?

I mean, later in the century, it's China too, because they are a resource, major resource, commodity, resource exporter. But Canada's an open economy, so that's the answer.

>> John Hartley: Wow, I mean, that's totally fascinating, both as somebody that grew up in Canada and someone who works in international economics to some degree.

So you've written, in your career, you've written 350 academic papers, approximately about 20 books. I'm curious, what have been some of your favorite accomplishments in economic history and monetary economics? What would you say your main ideas about monetary economics are? I think it's safe to say that you like to take the economic history sort of long view.

I think in the same tradition of Friedman and Schwartz, you like to take the old sort of Chicago monetary economics approach and look at economic history as a kind of laboratory looking at various monetary experiments. And I would assume that you would recommend that policymakers should pay extra careful attention to history and perhaps look back at it.

More, I wanna talk about, I guess, just a few different sort of strands of work that you've been involved in. You had a very famous conference volume with Anna Schwartz on the gold standard, can you talk a little bit about that?

>> Michael Bordo: Yeah, so we had a conference in 1983 at Hilton Head, South Carolina, an NBR conference.

And the reason we held it was because there was a lot of interest at the end of the Great Inflation in the US going on some kind of tying the dollar to gold. And there was a commission, US Gold Commission in DC, it was a Congressional Commission. Anna Schwartz, she was in charge, she was the director of it and I was her staff, okay?

I did the crunching and I did a lot of the work in the book that we put out. And so I was really involved in the gold standard, okay? And then I was visiting the St. Louis Fed and the research director at the time, Ted Balbach, who was a student of Alan Meltzer and Bruner, he asked me to write a paper explaining what the gold standard was.

And I put in a lot of time, I was there for a year. I wrote a paper on the classical gold standard, I explained it. I put a lot of data together, okay? They published it in the St. Louis Fed Review in 1981, and it got more hits than any other paper they ever published, okay?

Because this is the interesting gold. So our conference was to say, let's look at history because there's so much interest in gold. How did the gold standard work? How did it work? How did monetary policy work in the gold standard? Why did it break down? Why is the gold not a good idea today?

So we commissioned papers by some really top people. And I was the co-organizer with Anna Schwartz and Marty Feldstein, who was heading to the NDR then, he and I got on really well. And so he just wrote a blank check to have this big conference. We had probably the best people, many of the best people in international monetary economics at this conference, a lot of whom aren't around anymore.

Friedman was there, Bruner was there, Mundell was there, Thorne Bush, I can just go through the list and Frankl, and so that was a great book. And I wrote a big paper at the beginning on the sort of the history of ideas on the gold standard. How did how do people think about the gold standard?

And how did thinking about the gold standard evolved? And I wrote this big paper, history of economic thought mainly, and people still cite it, okay? So I feel really good about that.

>> John Hartley: That's terrific. And then what about, you have another very famous conference volume with Barry Iken, Green on, I think, the Bretton Woods system, that I think has been very influential in sort of documenting a lot of the historical facts around Bretton Woods.

Can you talk a little bit more about that?

>> Michael Bordo: Yeah, so what we did was the Bretton Woods system collapsed in 1971 when Richard Nixon president closed the gold window. There's a whole lot written about that, George Shultz was part of that process, okay? But what we did was we had this idea, I had this idea with Barry that we would have a retrospective on Bretton Woods 20 years after it.

Okay, since 1991, again, we commissioned really top people in international monetary economics to write the papers. And I did the first paper, which was, in a sense, a survey on the Bretton Woods system. What was the Bretton Woods system? How did it evolve? Okay, what were the problems the Bretton Woods system, why did it break down?

And so that was the first paper, and then there were a lot of really great papers that followed that. And that first paper is still, when anyone works on Bretton Woods, they always go back to that paper. So I feel great about that.

>> John Hartley: And we're now at the 50th anniversary of the breakdown of the Bretton Woods system.

Do you think that we've sort of learned anything in the past 50 years about exchange rates? And obviously, things have changed a little bit in the sense that we now, certainly, most advanced economies, I think, still have floating exchange rates. And Friedman, I think, arguably won that debate with a famous debate with Bob Mundell over fixed versus floating exchange rates.

This was something, if you look back in some of Friedman's older work and say, capitalism and freedom, he would have these very famous debates with Bob Mundell. And the fixed versus floating debate was a thing for a long time. I mean, now it's easy, you can look sort of in hindsight.

Well, obviously, floating exchange rates kinda make sense for a number of reasons. But interestingly, I feel like it certainly was not clear when the Bretton Woods system broke down.

>> Michael Bordo: Sure it wasn't but you see, I mean-.

>> John Hartley: There's still some people that out there, I think, who are there, gold, standard, oil, standard exchange rate, people who still wanna-

 

>> Michael Bordo: Union came out of that against a pushback to floating exchange rates.

>> John Hartley: The optimal currency areas, certainly, Mundell was part of that.

>> Michael Bordo: Right, but in a sense, the way I see it is Milton, and this is one of Milton's great accomplishments, he won the war he really did.

The world's been on floating since the 70s. It took them like 15 to 20 years to realize you had to conduct sound monetary policy. In fact, Friedman said two things. He said, floating gives you independence, okay? But he said that what really matters is the policies you follow.

If you follow bad monetary policies, floating isn't gonna be good for you, it may even exacerbate your problems. So it took 15, 20 years before they figured that one out. But what's happened is since then, it's very successful. And all the countries that went on floating and the advanced countries have done extremely well.

And in a sense, what they did was, again, going back to Friedman. Friedman said, you need a monetary rule and you need an anchor to anchor monetary policy. And the countries, the most successful countries, Canada, okay, Australia, New Zealand, Sweden, the ones who floated early and developed these it inflation target, they've done the best.

So I see the floating, which some people used to call a non-system. I see that as an amazing accomplishment.

>> John Hartley: It's fascinating to just, I mean, think about how that has evolved. And certainly now, I think too, the whole concept of what you could kinda call Washington consensus, or dare I say neoliberal consensus around not only free-flowing exchange rates but floating capital or capital flows.

I feel like over the past decade or so, there's been a bit of a change in thinking around what the IMF thinks about capital inflows and hot money, and that it's maybe not so great to have. So they're sort of on the capital control side of things, I think the IMF has budged a little bit and we're not quite in that old Washington consensus world anymore.

But it's an interesting debate that still goes on, both free exchange rates versus fixed and the whole should we have free floating capital flows? I wanna talk to you a little bit more about banking crises. And certainly, given that we've been seeing recently in the US, there's been a lot of attention around Silicon Valley bank and regional banks that have been failing and have entered receivership with the FDIC.

You've written a very famous paper on the history of banking and financial crises, as well as many other famous papers on lender of last resort powers. I'm curious what you think about the whole regional banking crisis that we're seeing now and some of these old historical credit crunches that we tend to see around these Fed hiking cycles.

What do you think economic history should teach us or teach policymakers about these sorts of banking crises that seem to crop up. Or credit crunches that seem to crop up when central banks are raising interest rates in response to, say, inflation?

>> Michael Bordo: Yeah, so, I mean, there's a number of themes that are going on at the same time, and people don't always recognize that.

So one of the themes that comes out of my work on credit crunches with Joseph Halbrook, a researcher at the Cleveland Fed, is that the business cycle. If we look at the business cycle in the US, we went all the way back to the 1860s, okay? But the business cycle in the US in the post World War II period, always has this sort of pattern whereby the Feds behind the curve, okay?

There's a recession, they follow expansionary policy, but they keep going too long, and then inflation starts to heat up and they tighten. And what almost always happens is that as the tightening cycle progresses, there's financial stresses, okay? There's bank failures, there's savings and loans, I mean, there's a whole history of credit crunches, okay?

It's part of the pattern. And what our research shows and is looking at today is that most of those episodes occurred when inflation was low. And so when the Fed tightened, in a sense, the credit crunch was a signal for them to loosen because they had pretty well knocked the inflation out of the system.

But there were two episodes in the 1970s when this pattern happened and the Fed did not, the Fed was tightening. It then loosened in the early 70s and in 75, and then they threw in the towel again because unemployment is going up, okay? And the great inflation kept ratcheting up, so there were two big mistakes.

Well, here we are right now, where we still have inflation, it's persistent, okay? It's like 4.5 or 5%, okay? And we have a credit crunch, and the Fed is gonna pause, okay? Because they don't wanna have a full blown financial crisis. But the risk is that they don't get rid of the inflation and then they have to do more tightening, which could lead to more financial instability, okay?

So the other theme, is the theme about banking regulation and lender of last resort, okay? So one of the things we saw in this recent SVB crisis and now with the bank in New York is that, in a sense, when it looks like there's, that a bank is in trouble and it's a big bank and possibly politically connected, okay?

They're gonna get bailed out and the depositors are gonna get bailed out. This was happening with SVB, I couldn't believe it when they talked about, when Janet Yellen talked about, well, uninsured depositors will make sure that they don't lose any money. Well, the whole point of uninsured depositors, it goes back to the legislation in the 1990s, was that they would be, they would police the banks and they would make them honest.

They would keep them from making the kinds of risky moves that a lot of the banks do. They would keep them looking at their balance sheets. And so we get a crisis because the banks make big mistakes and because the Fed is tightening, why is the Fed tightening?

Because they're too late, they were way behind the curve after the pandemic. So they caused the inflation, then they're tightening is causing a recession, totally predictable, and it's causing financial stress. And then you got this moral hazard problem tied in with bailing out or protecting the big institutions.

Not so big, but still big institutions that are involved. So I see this as pretty terrible, actually, it's passing.

>> John Hartley: And I also just on this whole topic of sort of what causes inflation? You recently did some work with Mickey Levy for a conference in the UK on how large fiscal expansions can lead to inflation.

But I suppose they can also be accommodated by monetary expansions. Can you talk a little bit more about that and sort of your view over, for example, the current sort of global inflation scenario? Obviously, there's a massive debate right now about what degree supply chains versus fiscal policy versus monetary policy versus other causes.

There's some people out there that are arguing that corporations are raising prices. And it's like an IO kind of story, I'm curious, where do you land in?

>> Michael Bordo: I'm totally retro, I mean, I think that inflation is a monetary phenomenon. But I do think that when you say a monetary phenomenon, it's usually because there's large fiscal expansion too.

And so we looked at just at the history across countries, the history of big fiscal expansions, inflation, and we found that in most cases it's wartime. And what happens is, like it happened in the United States, is you have a huge fiscal expansion, okay? Because you got to fund the war, and monetary policy is very accommodative.

So you get the money supply going up and you got big fiscal deficits and we got inflation. In World War II, we had controls, which in a sense were successful in the sense that patriotism got people not to evade them as much as they otherwise would have, okay?

So that was, and we looked at the history of different countries going all the way back to the 18th century. And so what we found was that when you have big shocks which involve fiscal expansion, that the central banks usually involved, okay? And that you get inflation and we were very eclectic on the theories, okay?

So we, the way I saw it was, I always had this sort of simple monetarist or the, or the sergeant Tom Sargent story about how the central bank is always gonna accommodate the FIDC, okay? But I was very-.

>> John Hartley: Fiscal dominance, kind of-.

>> Michael Bordo: The fiscal dominance story but I've always been sympathetic to John Cochrane's work on fiscal theory.

The price, in a sense, the jury's out on what goes on. But fiscal is when you have big inflation, fiscal is almost always involved, okay. And even the great inflation, okay, the great inflation was the Vietnam War. And Johnson's great society and the Fed was accommodating, okay? So that was a peacetime, it was a war, but not a world war.

I see the pandemic as World War II, existential crisis, okay? The government in the US, UK, a whole lot of other countries, they throw the kitchen sink at it. And the central bank, the Fed, the Bank of England, they accommodate it, okay? And so, it was so predictable to me, that this was going to lead to inflation.

And then there's all this talk about the supply shocks, supply this supply. I've always thought that supply shocks are relevant price changes, and they're temporary, okay? All that can be part of the process. But what's behind it always is monetary expansion, and usually what's behind that is fiscal.

And so I just knew it in 2020, that we were gonna have inflation. And we said this in this paper, and then we had two pieces in the Wall Street Journal where we worked in early 2021, we were predicting that this was going to happen, and we were right, okay?

Larry Summers did the same thing, Larry Summers is more famous than me, that he's the one that gets the credit. But we were right, and the Fed was wrong, and they blamed it on temporary. And so that's-.

>> John Hartley: Transitory.

>> Michael Bordo: Right and it comes to me, it's just knowing history.

And so my criticism of the Fed and other central banks, is they should look back at their own histories, and how could they not see this was coming? I find it impossible to understand.

>> John Hartley: Absolutely, I feel like history is such an important thing to always think about, and there's the famous saying, I think history doesn't repeat itself, but it certainly rhymes.

That's fascinating, I'm curious, just your time at Chicago, do you have any particular Friedman stories or anything like that you wanna show? You also wrote many papers with Anna Schwartz. I feel like this sort of long and wonderful macro and monetary history tradition doesn't quite get its due enough in economics departments today.

Some departments, like Northwestern and Sanford certainly are still very invested actively in economic history, and as are many other departments as well. But I feel like in terms of developing new talent, it can be a bit rare nowadays. But I'm curious, do you have any particular fun stories that you'd like to share?

 

>> Michael Bordo: I mean, anybody who knew Friedman, will tell you that he was a great teacher. If you were a graduate student, he was a very nice guy. He was hard to get an appointment to see him, he was really busy, okay? But when I saw him, we got on just fine.

And the thing about Friedman, he was really like, if you weren't a graduate student, and if you were an economist, established economist, and you came to the money workshop. Then you were in big trouble, because Friedman, he was really incredible how he would take people apart. But the one episode that I remember, it sticks in my brain, okay?

And there are a few people around that could remember, but not too many. So one time he had Robert Clower come down to the money workshop, Clower was Northwestern. Clower was a monetary theorist, a Keynesian, and he was giving one of his famous papers called a Keynesian perplex or something like that.

Okay and I like Clower, he was a really nice guy, I liked him a lot. So the way Milton ran the money workshop, everybody was supposed to read the paper first, and they were supposed to have comments. And the author, he had five minutes to just clear up the typos and just say, motivate it.

And then Breeden would go, like, he'd go around the room, you'd say, page one, page two, the people would jump, okay? But if it was somebody like Clower, I heard he did this to other people. So Clower gives his intro, and then Milton says, Bob, I don't understand how a smart guy like you could be working on such jobs.

He said, okay. And it's like, very forward. Yeah, but Friedman was really good, and he was so brilliant. It's like, all of us who were students, we were kind of, intimidated by Friedman. He was a nice guy, but still, you just knew, you never had the insights that you had.

I always had that feeling in Chicago, I studied under the greats.

>> John Hartley: Absolutely, what you did.

>> Michael Bordo: I did, I was extremely lucky. And I knew Friedman when he was at the height of his analytical abilities, okay? That's mean, he did all his major work in monetary economics, and before that, price theory, okay?

Later, he became, a public intellectual when he came out here and he focused me, came to Hoover. But so I didn't know Friedman in those years. I mean, I came out here a couple of times and saw him, but we got on just fine. I mean, one time I came out, I came to California for a conference, for a meeting, and I tipped off Milton that I was coming, and he invited me over there to his apartment.

 

>> John Hartley: This is in San Francisco?

>> Michael Bordo: Yeah, I went to his apartment on Russian Hill, and it was really nice and roses, I always gone out flying with Rose, too. So, I had lunch with them and it was really fun, just hanging out with Friedman. I mean, everybody will say how he was brilliant, okay?

I think he was one of the two in my view, but not a lot of people don't agree anymore. I think he still was one of the two best economists of the 20th century.

>> John Hartley: Absolutely, I think a lot of people would still. I'm a bit biased, yeah, absolutely.

I mean, I think obviously there's others that would be in that conversation as well. But certainly, I mean, it's just amazing to think everything from the great microeconomics work that he did, theory of the consumption function, permanent income hypothesis type work. Certainly all the macro theory work around monetary targets and the Friedman rule of optimality, all the economic history work that we've been talking about, we've only been talking about just one branch of Friedman's brilliance.

And of course, all the public policy work and we also did great labor economics working. His dissertation was on occupational licensing with Simon Kuznets and so, just so prolific. And I feel like those sorts of economists are so rare these days.

>> Michael Bordo: I was very lucky, I was lucky to be, and I was extremely, even as lucky or more lucky to spend 30 years working with Anna Schwartz because Anna Schwartz, okay, she didn't get the credit.

She didn't get the Nobel Prize, but she was a key person in Friedman's work, okay? And that a monetary history of the United States was a joint product, and she did a lot. And I worked with her and we got on really fine. She had the same views as Milton, but she was interested in economic history more than he was.

And I found working with her was really one of the best things that ever happened because I worked with her for 30 years, okay? That launched my career in the United States. And we just did some great work together. And see, Milton was already out here at Hoover, and he wasn't doing the kind of academic work in monetary economics that he had done until the 70s, but Anna, she kept it going.

She talked to him, every week they would talk. And Anna was out there getting, she was in the NVR, she went to the monetary economics conferences. She followed everything, and she would be always keeping Friedman up to date, okay? But she was really, really smart. She wasn't a techie, okay?

She didn't do models, but she understood models. And she always understood that you have to go through the models to see what the story is, and that's been my approach. I go to macro workshops, I get tuned out when they get into the numerics and the equations, but the story is what I'm interested in.

I learn from them, from Anna, especially to see what exactly is this guy saying. So I learned what I got from them was how to get to the heart of an issue and see what's really important, what's the deep fundamental. And Friedman, he was, as you know, he always nailed it.

He always hit the nail on the head.

>> John Hartley: Absolutely, this has been a real privilege, Michael, to talk to a fellow Canadian economist on so many great topics of economic history from Bretton woods. Various inflationary episodes, including the one we're currently living in, the banking crises, and to what degree.

There's some similarities with a lot of past credit crunches in today's rate tightening cycle and things that we've been seeing recently with regional banks. This has been a real honor, and I really wanna thank you for joining us, Michael.

>> Michael Bordo: Thanks, it's my pleasure, really. You gotta stop me, and I can keep going.

 

>> John Hartley: This has been great, thank you so much.

>> Michael Bordo: Okay.

>> John Hartley: Today I was joined by Michael Bordo, a monetary historian, professor of economics at Rutgers University, Distinguished Visiting Fellow at the Hoover Institution, and a research associate at the National Bureau of Economic Research. This is the capitalism and freedom in the 21st century podcast where we talk about economics, markets and public policy.

I'm John Hartley, your host, thanks so much for joining us.