A superb paper by George S. Tavlas of Bank of Greece. Far more useful than several of those macro/monetary policy papers.

He tracks what led the Friedman/Schwartz duo to become monetarists. Friedman actually favored use of fiscal policy for stabilisation till 1940s. Then in the 1950s role of monetary factors started to make sense. There was also a huge role played by a FDIC economist Clark Warburton who has of course been forgotten. In many ways, Friedman’s core ideas came from Warburton:

During the late‐1940s and the early‐1950s Milton Friedman favored a rule under which fiscal policy would be used to generate changes in the money supply with the aim of stabilizing output at full employment. He believed that the economy is inherently unstable because of the endogeneity of the money supply under a fractional‐reserve banking system. In her work, Anna Schwartz downplayed the role of monetary factors in business cycles and the role of monetary policy as a stabilization tool.

I show how the joint work of Friedman and Schwartz from 1948 to 1958 led Friedman to view money as the “primary mover” in the business cycle and underpinned his shift to a rule based on money growth so that discretionary monetary policy would not act as a source of destabilizing shocks. The decisive factor in the evolution of Friedman’s thinking was the empirical confirmation that the Great Depression had been both initiated and deepened by the Fed.

The hitherto neglected influence of Clark Warburton on the evolution of Friedman’s thinking provides a missing ‐‐ but crucial ‐‐ link in explaining Friedman’s recognition of the role of monetary factors in the Great Depression and of the Fed’s ability to offset the destabilizing effects produced by shifts from deposits into currency under a fractional‐reserve banking system.

Great read over how thoughts and ideas are shaped..It is hardly as glamorous as usually perceived.