.

The typescript whose text is reproduced below is from Box 12, Folder 29, Harry Dexter White Papers, Seeley G. Mudd Manuscript Library, Princeton University Library. Published with permission of Princeton University Library. Its title, authorship and date are written at the top of its first page, in handwriting identified by Bruce Craig and Sandilands as that of White. In preparing the text for publication we have corrected obvious typographical errors. We are grateful to Daniele Besomi, Milton Friedman, Perry Mehrling and an anonymous referee for comments on an earlier draft of our Introduction.

Abstract

This paper explains the significance to our understanding of the origins and supposed uniqueness of the Chicago monetary tradition of a hitherto almost unknown Memorandum on anti-depression policy that was produced in January 1932 by three Harvard instructors, Lauchlin Currie, Paul Theodore Ellsworth, and Harry Dexter White. The memorandum sketched out an explanation of the then rapidly developing Great Contraction, as well as a comprehensive and radical policy programme for dealing with it. In keeping with the authors' explanation of the Contraction as a consequence of a collapsing money supply, the main domestic components of that programme were to be vigorously expansionary open-market operations and substantial deficit spending that, particularly in its early stages, was to be financed by money creation; its international dimension involved a return to free trade and the cancellation of inter-allied debts and reparations.

The document provides evidence of an original element in macroeconomic thought at Harvard (influenced by Allyn Young's earlier teaching and empirical work) in the early years of the depression, before the New Deal, and before the importation of the somewhat different theoretical ideas of Keynes's General Theory. Second, it provides insight into the early intellectual development of Currie and White, both of whom had great influence on U.S. domestic and international economic policy during the Roosevelt years. Third, the Memorandum is shown to have striking similarities with - and probably to have had a significant influence upon - the set of recommendations emerging at the end of the Harris Foundation conference on "Gold and Monetary Stabilization" (January 31, 1932) that has been cited as one of the seminal documents of the "Chicago monetary tradition".

The Memorandum's Authors and Their Message

The Memorandum that this note introduces was completed by three young members of the Harvard economics department some time in January 1932. Two of them, Lauchlin Currie and Harry Dexter White, were soon to play key roles on the American, indeed the world-wide, policy scene. Both of them would go to Washington in 1934 as founding members of Jacob Viner's "Freshman Brains Trust". In due course, first at the Federal Reserve Board, and later at the Treasury and the White House, Currie would become a highly visible and leading advocate of expansionary fiscal policy, while White, at the Treasury, was to be a co-architect, with Keynes, of the Bretton Woods system. Both would fall victim to anti-communist witch-hunts in the late 1940s, in White's case perhaps at the cost of his life, since he died of a heart attack in 1948 three days after a strenuous hearing before the House Committee on Un -American Activities (HUAC). The third author, Paul Theodore Ellsworth, later a Professor of Economics at the University of Wisconsin, is perhaps best remembered nowadays as the author of a leading textbook in International Economics (Ellsworth 1937), though it is worth noting that he was also a very early (December 1936) but hitherto unrecognised discoverer of what came to be called the IS - LM model as a means of elucidating issues raised by Keynes' (1936) General Theory.[1]

It is not known how widely this Memorandum was circulated, but the fact that it is a piece of policy advocacy, combined with its relatively polished style, makes it inconceivable that it was meant for the eyes and files of its authors alone. As readers will see, it sketches out an explanation of the then rapidly developing Great Contraction, as well as a comprehensive and radical policy programme for dealing with it. In keeping with its authors' explanation of the Contraction as a consequence of a collapsing money supply, the main domestic components of that programme were to be vigorously expansionary open-market operations and substantial deficit spending that, particularly in its early stages, was to be financed by money creation; its international dimension involved a return to free trade and serious efforts to resolve the problems of international indebtedness that had originated in the Great War and in the Treaty of Versailles which had brought it to an uneasy end in 1919.

The Memorandum's Significance

The existence of this Memorandum has recently been noted in one or two publications, but apart from a brief discussion in Sandilands (2001), its significance has not been adequately appreciated. First, it is self-evidently, a coherent work of high intellectual quality, and provides documentary evidence about an original and provocative element in the macroeconomic thought of an important intellectual centre, namely Harvard, in the early years of the depression, before the New Deal and before the importation of the theoretical ideas of Keynes' General Theory (1936). Second, it provides considerable insight into the early intellectual development of Currie and White, both of whom had great influence on the course of US domestic and international economic policy in the years of the Roosevelt Administration. The importance of a document in which these two had a hand, and which deals extensively with domestic macroeconomic policy and international economic relations is surely obvious. It merits the attention of any historian of inter-war economic thought for this reason alone.

The Memorandum is also interesting for a third reason. There are strong similarities between the programme it sets out and the one embodied in the "Recommendations" sent to President Hoover over the signatures of 24 economists who participated in the conference on "Gold and Monetary Stabilization" held under the auspices of the Norman Wait Harris Foundation at the University of Chicago on January 27-31, 1932, and published in its proceedings (Wright 1932, 161-63). This conference took place at the end of the very month in which this Memorandum was completed. Given its venue, and the fact that no fewer than 12 of the signatories of its "Recommendations" occupied posts at the University of Chicago, they have long been cited as one the seminal documents of what has sometimes been claimed to be a unique "Chicago Tradition" in monetary analysis.[2] But as one of us (Laidler 1993) has earlier noted, one of the non-Chicago economists involved in drafting them was John H. Williams of Harvard. As we shall see, the record of his oral contributions to the Harris Foundation conference suggests that he was probably familiar with the Harvard Memorandum, and certainly well acquainted with some of the ideas emphasised in it.[3] These considerations constitute strong circumstantial evidence of a Harvard influence on one of the "Chicago Tradition's" earliest documents. But even if this conjecture is discounted, it is clear from the following Memorandum that there was nothing unique about the Chicago Tradition as it stood in early 1932.[4]

We shall now elaborate on these matters in turn.

Harvard Economists and the Depression

The best known product of the Harvard Economics Department dealing with economic policy in the early 1930s is a collection of essays entitled The Economics of the Recovery Program (D. V. Brown et al., 1934), which the department's historian Edward Mason (1982) has tactfully characterised as "not very distinguished". We prefer to stand by the verdict of Laidler (1993, 1078) that most of them "verge on the incoherent and do no credit to their distinguished authors". The only intellectually coherent contribution to this collection, which offered a comprehensively negative assessment of President Roosevelt's policy plans, was that of Joseph Schumpeter. He advanced an essentially "Austrian" interpretation of the depression, locating its causes in a bout of over-investment which had collapsed in 1929, and arguing forcefully that attempts at a cure by monetary or fiscal expansion would serve only to prolong the slump. This was also the view of another member of the Harvard department, albeit a visitor from Vienna at this time, Gottfried von Haberler, who gave it a thorough airing in a paper (Haberler 1932) presented to the very Harris Foundation conference that produced the "Recommendations" referred to earlier, which he did not sign.

There is, then, no question that Harvard's reputation for mediocrity and policy pessimism in the early 1930s is founded in fact, but this has never been the whole story. Its Economics department had until quite recently been an important centre for the development of balance of payments theory under the leadership of Frank Taussig, and monetary economics, largely under the leadership of Allyn A.Young. Among Taussig's supervisees in earlier years had been Jacob Viner, Frank Graham, and John H. Williams, and among Young's, at Harvard, had been James Angell, Arthur Marget, and Edward H. Chamberlin, while Currie had expected to become another.[5]

Taussig was still on the Harvard faculty in the early 1930s, and still editor of the Quarterly Journal of Economics. He also remained involved with graduate students' work, supervising the thesis of Harry White, one of the authors of the following Memorandum, while Currie was also closely enough associated with him to contribute to a collection of essays in his honour in 1936.[6] However, Taussig was by then in his seventies and, as Tavlas (1997, 170-71) has noted, such public comments of his on the Depression that survive were few and non-committal. Young, moreover, had left Harvard in 1927 to take up a temporary appointment at the London School of Economics, from which he had expected to return in 1930, but he died of influenza in March 1929 at the early age of fifty-two.

As Perry Mehrling (1997) has argued, Young's work in monetary economics had sought a middle ground between the quantity theory of Irving Fisher and the real-bills approach of James Laurence Laughlin and Henry Parker Willis which dominated thinking at the Federal Reserve Board in the 1920s and early 1930s; and it had informed his efforts as an advisor to Benjamin Strong at the Federal Reserve Bank of New York.[7] Young was also a great admirer of, and was in turn admired by, Ralph Hawtrey, an official of the United Kingdom Treasury, whose only academic appointment, as a visitor to Harvard in 1928-29, he was instrumental in arranging. In common with Hawtrey, Young was a supporter of the gold standard and an advocate of discretionary monetary policy aimed at ironing out the cycle, but unlike Hawtrey he was also an advocate of public works expenditure as a tool of stabilisation policy in its own right. Young's death left a vacuum in the field of what we would now call macroeconomics among the senior ranks at Harvard that Joseph Schumpeter was soon to fill.

Currie, one of the three authors of the Memorandum that is the focus of this note, had been Young's student, and Hawtrey's assistant during his year at Harvard. He had expected to write his Ph.D. thesis (Currie 1931) under Young's supervision, but it was, in fact, completed under the guidance of Williams and submitted in January 1931. This thesis is a clear antecedent of the Memorandum.[9] It blended Hawtrey's monetary cycle theory with Young's empirical approach to the analysis of the United States monetary system, and offered (among other things) a quantity theory based explanation of the downturn that began in 1929, a critique of the Federal Reserve system's passive response to it, and the suggestion that a more vigorously expansionary monetary policy would have been appropriate during 1929-30. It is worth noting that the quantity theory he deployed was an income velocity version of the doctrine, such as Hawtrey and Young customarily used, rather than the Fisherian transaction velocity variant.[10] And Currie's slightly later Supply and Control of Money in the United States (1934), dedicated to Young's memory, further developed these themes, and was (indeed still is) particularly notable for expounding the thesis that, far from having engaged in expansionary policy as it claimed at the time, the Federal Reserve system had remained largely passive as the depression gathered momentum into 1932-33. He can, then, reasonably be regarded as having largely anticipated the monetary explanation of the Great Contraction that was later developed by Friedman and Anna J. Schwartz (1963). Only in his sometimes ambiguous discussions of the build-up of excess reserves in the banking system during 1932-33 does his analysis differ from theirs.[11]

Particularly important given the joint authorship of the following Memorandum, there already exists evidence that Currie did not develop these ideas in isolation. It is already well known that he and White were already close friends and worked together when at Harvard (see Sandilands, 1990, 23). Furthermore, when Erik Lundberg spent time at Harvard in 1933 he found the department a centre of lively debate, and he described its environment in the following terms:

"Schumpeter had gathered around him a group of young economists, all working with modern monetary theories. During most of the summer I had discussions with some of them, especially on monetary questions concerning the business cycle. In Washington, and also to a large extent in New York, I had repeatedly heard of the tremendous inflation during the years leading up to 1929. At Harvard, reputed for its conservatism, I now learned that there had been no inflation, but rather the contrary. Professor [sic] Currie was the most eager advocate of this theory. . . .; Currie was not alone in holding this opinion. He, as well as the others who held this belief at Harvard were good economists, as were the people with the opposite view in New York and Washington." (Lundberg [1934] 1995, 62, italics added)[12]

Evidently Currie was no lone wolf at Harvard in the early 1930s, as Tavlas (1997) characterized him, but nor was he a professor as Lundberg had it; he was an untenured instructor.

It would be a mistake to think that divisions of opinion about macroeconomic questions at Harvard lay solely along lines demarcated by age and rank, with mediocrity and pessimism being concentrated among the department's "establishment". Though they would in due course become members of that establishment, some contributors to the Economics of the Recovery Program were, after all, young and untenured in 1934 (e.g., Wassily Leontief, Edward Chamberlin, Seymour Harris) while, as we shall see, at least one member of that establishment, John H. Williams was quite sympathetic to proposals like those of Currie and his associates. Even so, as the 1930s progressed, those younger members of the Department whose macroeconomic views were hostile to the New Deal won promotion and stayed, while those who, like the authors of this Memorandum, took the more radical and intellectually coherent position it epitomises, either left or were eased out. By 1936, therefore, when "Keynes came to America" with a new crop of graduate students who had studied with him at Cambridge and then migrated to Harvard, the department was perhaps a less interesting and lively place than it had been only a few years earlier.[13]

This Memorandum may be read, then, as giving some indication of the character and quality of an alternative intellectual tradition that might have developed at Harvard in the 1930s, had the Department's promotion and tenure policies been different. And in the background here perhaps there stands the shade of Young, who had advocated activist monetary and fiscal stabilisation policies during the 1920s, and had also, incidentally, written extensively on the monetary problems created by the international indebtedness left over from World War I and the Versailles Peace Conference, which he had attended as a senior adviser to the American delegation.[14]

Currie's Economics

Currie was among those eased out of Harvard. As we have already noted, he was, along with White, a founding member of Jacob Viner's so-called "Freshman Brains Trust" in Washington. This appointment, which began in June 1934 was supposed to be for a matter of months, and when he was invited to extend it into the autumn of that year, Harvard refused to grant him further leave, in effect forcing his resignation (see Sandilands 1990, 56-57).

By his own (1978) account, Currie had been in difficulty with some of his senior colleagues for advocating unbalanced budgets as a means of fighting the depression long before 1934. Though no one, to the best of our knowledge, has ever questioned this particular claim, it does at first sight sit oddly with the so-far available published record of his work at Harvard which deals solely with monetary policy.[15] At the very least, it leaves open the question of how his analysis of fiscal policy at that time might have fitted in with his work on monetary questions. One commentator, Tavlas (1997, 170), has gone so far as to suggest, largely on the basis of Currie's (1978) own retrospective account, that his policy stance rested on a belief in "the inefficacy of open market operations and the need for budget deficits." The following Memorandum clarifies all of this. It first of all confirms the evidence of his other writings of the time that, contrary to Tavlas, Currie did indeed strongly and systematically advocate open market operations as an important policy measure in their own right. Even more striking, though written before the events of 1932, it also discusses in some detail the likelihood that the commercial banks' first response to open market operations would be to reduce their indebtedness to the Fed.. Thus the stress that Currie laid on this same point in (1934), in his after-the-event discussion of the inefficacy of the open-market operations that were actually executed in 1932, was in no way an ex post rationalization.

Nevertheless, Currie and his associates were unduly optimistic on two matters. They underestimated the chances of open market operations provoking a gold outflow, and they did not foresee the build up of excess reserves in the banking system which would do so much to inhibit the effectiveness of these operations, though they did appear to believe that neither of these problems would arise if their recommendations were implemented in full.[16] Most striking of all, however, this Memorandum shows that, as early as January 1932, Currie and his associates had concluded that the economic situation was sufficiently serious that open market operations alone might not be enough to deal with it: hence their advocacy of fiscal expansion. They were well aware of the potential for what we would now call "crowding out" effects to mute its influence, however, and argued (in the section on Public Expenditures, pp.29-30 below) the necessity of financing budget imbalances with money creation, particularly in the early stages of any such programme.

Here it is worth drawing attention to a certain similarity between their views and those of Hawtrey, whose assistant Currie had recently been. Hawtrey is rightly regarded as the originator of the "Treasury view" that fiscal policy not financed by money creation would usually be fully crowded out, and that, when deficits were financed by money creation, it was this money creation, and not any direct expenditure associated with the fiscal policy, that would do the work. The Memorandum comes close to this position in raising the possibility of fiscal policy's effects being crowding out if it is financed by bond issues. It should also be recalled, however, that Hawtrey (1925, pp. 41-42) discussed possible exceptions to his basic position. In particular, he allowed that an increase of confidence among the general public in an initially depressed economy could create a rise in velocity and prevent the effects on output of government expenditures being crowded out; and he also argued that this would only be possible if such expenditures were initially accompanied by money creation so as to permit a confidence-building expansion to get under way in the first place.[17] It is, furthermore, worth recalling that Currie's later expositions of the case for expansionary fiscal policy invariably paid more attention to the interaction of such measures with the quantity and velocity of money than did more explicitly Keynesian treatments of the topic.[18] Evidently, these later expositions rested on principles that he and his colleagues had begun to develop while at Harvard in the early 1930s, and owed nothing to any later influence emanating from Keynes' General Theory; but they may have owed something to Hawtrey's analysis of exceptions to his own central position.[19]

The Harris Foundation "Recommendations"

Finally we turn to the extremely strong similarities between the following Memorandum and the "Recommendations" to President Hoover that emerged from the Harris Foundation conference of January 1932. These "Recommendations" (along with Jacob Viner's contribution to the conference that produced them) are the earliest of the sources cited by Milton Friedman (1974, 162-68) as epitomising the economics of the "Chicago Tradition" of the 1930s, from which, he claimed, his own work ultimately drew its inspiration. Quoting J. Ronnie Davis Friedman called attention to Chicago economists' advocacy of "'large and continuous budget deficits to combat the mass unemployment and deflation of the times', " (Davis 1968, 476, as quoted by Friedman 1974, 163) and went on to remark, now quoting from the "Recommendations" (Wright 1932, 162):

They recommended also "that the Federal Reserve banks systematically pursue open-market operations with the double aim of facilitating necessary government financing and increasing the liquidity of the banking structure" (Friedman 1974, 163).

Friedman (1974) contrasted the "hopeful and 'relevant' view" epitomised by these passages with the London School (really Austrian) view that I referred to in my "Restatement" [1956] when I spoke of 'the atrophied and rigid caricature [of the quantity theory] that is so frequently described by the proponents of the new income-expenditure approach. . .' (Friedman 1974, 163).

Now Friedman was careful to note that the "Recommendations" bore the signatures of twelve non-Chicago economists in addition to twelve from that University, and he did not therefore claim that "this more hopeful and 'relevant' view" of what could be done about the depression "was restricted to Chicago" (1974, 163-64).[20] But a comparison of the Harris Foundation "Recommendations" with the following Memorandum, completed, it should be recalled, earlier in the same month, forces us to conclude that, at this early stage in the development of the "Chicago tradition", there was nothing at all unique about them.[21]

The "Recommendations" urged President Hoover to support vigorous open market operations and public works programmes, (paras. 2 - 4); so did the Currie, Ellsworth and White Memorandum, though the latter were more enthusiastic about the second of these measures. The "Recommendations" urged that the Federal Reserve system be empowered to issue notes against government securities, thus effectively increasing the amount of "free gold" available to the system (para. 1); so did the Memorandum. Finally, they urged that attention be given to reducing or canceling inter-governmental debts, and to beginning international negotiations with a view to securing a substantial reduction in tariffs and other trade barriers (paras. 5 and 6); so, once again, did the Memorandum. The similarities between the two documents are so great that we find it hard to believe that they are coincidental.[22] Moreover, there is a direct connection between these two documents, in the person of John H. Williams. He was beyond doubt familiar with Currie's earlier work, having supervised his thesis, and he not only signed the Harris recommendations, but also had a hand in drafting them sufficiently important to have been chosen by his colleagues to prepare an essay for the Harris Conference volume putting them in context (Williams 1932).

That essay, it must be said, makes no explicit reference to Currie, Ellsworth, and White, nor did Williams refer directly to them or their Memorandum in his extensive contributions to the oral deliberations of the conference. Moreover, his essay has nothing to say about fiscal policy, despite the fact that one of the recommendations it was justifying was that "the federal government maintain its program of public works and public services at a level not lower than that of 1931-32." However, Williams's conclusions - that "the greatest single help, internally, would be a vigorous open-market policy designed to reduce rediscounts of member banks and to increase the supply of purchasing power" (Williams 1932, 157), and that "the greatest help of international character would be the substantial reduction, or cancellation, of war debts, and the scaling down of tariff barriers" (Williams 1932, 157) - echo not only the other recommendations emanating from the conference, but also, as we have already seen, proposals set out in great detail in the Memorandum. Furthermore, the transcript of the oral deliberations of the Harris Foundation conference shows that Williams stressed the importance of existing commercial bank indebtedness to the Federal reserve system as a factor affecting the likely efficacy of open market operations, just as the Memorandum does, and he also gave a quantitative assessment of the scale of open market operations needed to influence the economy that ran exactly parallel to a similar discussion in the Memorandum. Where Currie, Ellsworth and White wrote

At the moment of writing the indebtedness [of commercial banks to the Fed] amounts to over $800,000,000. We strongly recommend, therefore, that the reserve banks purchase upwards of a billion dollars of bills and securities. This action would satisfy member banks' desire for liquidity and in addition give them large surplus reserves,

Williams remarked

If we examine our situation today we would find that it would take something like double the present security holdings of the Federal Reserve banks merely to get the banking system out of debt. Apparently the first desire of the banking system would be to clear itself from debt, so that I can express my point . . . quantitatively by saying that it would take, for example, $1,600,000,000 of Federal Reserve assets merely to get ready to get started to pump money into circulation. (294)

If he has not actually read the Memorandum, then, Williams demonstrably held essentially identical views to those of its authors about the scale of open market operations needed at the beginning of 1932.[23] An opinion on a critical question of monetary policy, with roots in discussions then going on at Harvard was thus clearly represented at the Harris Foundation conference by one of the principle authors of its "Recommendations. . .". It is hard to believe, as we have already remarked, that these two documents are totally independent of one another.

Conclusions

To summarize then: the following Memorandum is interesting from a number of points of view. It provides concrete evidence that, whatever it may have been like later in the decade, in 1931-32 the Harvard Economics department was the scene of vigorous and constructive discussion of the depression and how to deal with it, with an optimistic activist viewpoint well represented. Lauchlin Currie's role here has long been recognized, and this Memorandum throws important new light on it, showing clearly that he was not a "lone wolf" at Harvard. More important, it provides a unique source of evidence on just how far his views on the use of fiscal policy had developed while he was still at Harvard, and how they fitted together with his, by now well known, monetary interpretation of the causes of the depression. Finally, the similarities between this Memorandum's contents and those of the famous Harris Foundation "Recommendations" of 31 January 1932 provide conclusive evidence that many of the ideas that characterize the pre-General Theory "Chicago tradition" in monetary economics, of which so much has been written in the last twenty-five years, were also current at Harvard at the time when that tradition was developing. For all these reasons, then, the following Memorandum is an important document.

FOOTNOTES

1. The standard source of information on Currie's life is Sandilands (1990); on White, see David Rees (1973) and James M. Boughton (2001). We are unaware of any biography of Ellsworth, but Paul Dedenhefer and Craufurd Goodwin tell us that some information about him is to be found in Robert J. Lampman (1993), though no single section of the book is devoted to him. Ellsworth's (1936) exposition exposition of a version of the IS-LM model, published when he held an appointment at the University of Cincinnati seems to be the second to have appeared (after that of W. B. Reddaway 1936) and antedates J. R. Hicks's (1937) exposition of the system. Warren Young (1987) does not refer to it in his now standard history of the "IS-LM-ization" of Keynesian economics.
2. The first mention of this Chicago Tradition seems to have been in Milton Friedman (1956), and its nature and claim to uniqueness were subsequently discussed by, among others, Don Patinkin (1969, 1973) Thomas Humphrey (1971), and Friedman (1974). The links, or absence thereof, of this tradition to ideas current at Harvard are debated by Laidler (1993, 1998) and George Tavlas (1997, 1998a). Tavlas (1998b) later restates the view that the Chicago Tradition was unique. Friedman (1974) makes much of the 1932 Harris Foundation conference as an example of the Chicago Tradition, and in so doing he draws on the work of J. Ronnie Davis (1968) who also discussed it extensively. See also Davis (1971).
3. A complete transcript of the conference's deliberations (Norman Wait Harris Foundation 1932) is to be found in the Regenstein Library at the University of Chicago
4. In a letter to Laidler, dated January 22, 2001, Milton Friedman remarks that "the Memorandum is a truly remarkable and impressive document, and it certainly supports your position that Chicago had no monopoly on the quantity theory approach to the Great Depression and to measures required to recover from it. I have no doubt, as you suggest in your introductory comments, that more than coincidence explains the similarity of the views expressed by the Harvard trio and the recommendations coming out of the Harris conference." We are grateful to Professor Friedman for permission to quote from this letter.
5. Earlier, at Cornell, Young had supervised Frank H. Knight and Harold Reed.
6. See Sandilands 1990, p. 54. Also, in a letter to Taussig, written in October 1934, Viner remarks "I have had a few Harvard men working for me here [in Washington], Currie, [Alan] Sweezy, and White, and have been very favorably impressed indeed with them, especially the two former." We are grateful to Bruce Craig for this information.
7. In addition to Mehrling's study of Young, the reader's attention is also drawn to Mehrling and Sandilands's preface to their 1999 collection of work by him, much of it hitherto unknown, as well as to Charles Blitch's 1995 biography.
8. For Young on Hawtrey, see for example his 1924 review of Currency and Credit, and for Hawtrey on Young, his 1927 review of Economic Problems New and Old .
9. Currie would later suggest that Williams' role in shaping his thesis was rather minor. He remarked in a 1992 letter to Laidler that "I probably had more influence on his [Williams's] thinking than he did on mine." For further discussion of this point, which corroborates the suggestion we make below that the Memorandum reprinted here influenced Williams's contributions to the 1932 Harris Foundation conference, see Laidler 1993, p.1091, fn.25.
10. Currie's thesis in its original 1931 version contains an extensive discussion of Hawtrey's work, but this material was deleted from the draft later submitted for the Wells Prize competition at Harvard. See Laidler 1999, p. 234, fn.25. We speculate, without any direct evidence, that he may have done this because Haberler, one of the judges for the competition that year, was known to be hostile to Hawtrey, having, for example, explicitly and sharply criticized him in his Harris Foundation paper (Haberler 1932). Whatever the reason, however, the modification was to no avail. The prize that year was awarded to White. See Sandilands 1990, 23.
11. Karl Brunner (1968) and Humphrey (1971) were the first to note Currie's contribution here. Frank Steindl (1995 chap.4) defends the uniqueness of Friedman and Schwartz's interpretation, largely on the basis of his reading of Currie's discussions of the role of excess reserves. See note 16 below for further comment.
12. In this passage, the word "inflation" should be read, in accordance with the common usage of the time, as referring to the expansion of money and credit, rather than to a rise in the price level. The view that the Depression was the inevitable consequence of a previous overexpansion of credit in the 1920s was held in common both by Austrian analysts such as Haberler, but also by advocates of the Real Bills Doctrine such as Henry Parker Willis. On this, see Laidler 1999, pp. 214-7. Currie and his co-authors of the following Memorandum clearly blamed it on the contraction of the money supply which began in a mild way in 1928 but quickly gathered momentum after October 1929, an interpretation already developed by Currie (1931).
13. Colander and Landreth (1996) contains a series of conversations with some of the economists involved in this later episode.
14. We nevertheless hesitate to enroll Young as a posthumous supporter of Currie and his colleagues in every aspect of their recommendations. During his life, Young attached great importance to the gold standard, and may well have hesitated to support wholeheartedly measures that might have put US adherence to it at risk. But that his work profoundly influenced Currie is beyond question.
15. Indeed, an unpublished December 1934 memorandum to Marriner Eccles titled "Confidence" is the earliest substantive item dealing with expansionary fiscal policy to appear in Sandilands's 1990 bibliography of Currie's work. In his January 1931 PhD dissertation, however, Currie did explore the links between monetary policy and the incentive to expand public works. Furthermore: "In so far as the policy of expanding public works in times of depression is adopted, and banks purchase bonds of public authorities, the additional bank credit will be spent directly and will not involve any decrease in the spending ability of private individuals" (Currie, 1931, p. 236).
16. Although Currie largely anticipated Friedman and Schwartz's (1963) explanation of the Great Contraction itself, his interpretation of the later years of the Depression differs markedly from theirs, particularly over the matter of the buildup of excess reserves after 1934. Currie came to regard this buildup as a sign that, whatever it might have accomplished up until the end of 1932, orthodox monetary policy alone was not likely to be effective in bringing about expansion unaided as the depression continued (See Laidler 1999, 243-4, for further discussion). Friedman and Schwartz on the other hand treat this same phenomenon as a result of an increase in the liquidity preferences of a badly shocked banking system. Currie was among those who recommended the increase of reserve requirements in 1936-37, which, in Friedman and Schwartz's (1963, 520-34) view, provoked a subsequent downturn in the money supply and recession in 1937-38. Currie attributed this recession to an inadvertent tightening of fiscal policy in that year. See Sandilands 1990, 87-92. Note finally that the claim here is not that Currie was in any general way a precursor or early exponent of Friedman's so-called monetarism. It is only that in one important respect, namely the analysis of the Great Contraction of 1929, Currie's work anticipated Friedman's later findings, as Friedman has himself acknowledged. See Laidler 1993, 1077-78 n.12.
17. See Laidler 1999, 125-28, for further discussion of Hawtrey's treatment of this and related matters. It is interesting to note that, on the second page of the Memorandum there is a reference to "recommendations recently made by Dr. [Warren] Persons." Though we have not been able to track this reference down to a precise source, Robert S. Herren (1997, 523) remarks that "As the depression deepened, Persons became actively involved in attempts to promote economic recovery. His proposals included monetary expansion, increased taxes, eliminating price-fixing policies, and retaining the gold standard. Although over fifty prominent economists and statisticians endorsed his program in 1932, Persons' ideas did not alter U.S. economic policy."
18. On this matter, see Currie (1978) and Sandilands 1990, 68-78.
19. And to Keynes's own earlier writings. He is quoted explicitly in the following Memorandum (p.28) in a passage about "the bogy of inflation" that Daniele Besomi has identified as coming from Can Lloyd George Do It? (Keynes and Henderson 1929, 118).
20. The signatories, and their affiliations, were: James W. Angell (Columbia), John H. Cover (Chicago), Garfield V. Cox (Chicago), Aaron Director (Chicago), Irving Fisher (Yale), Harry D. Gideonse (Chicago), Max Handman (Michigan), Alvin H. Hansen (Minnesota), Charles O. Hardy (Brookings), Frank H. Knight (Chicago) Arthur W. Marget (Minnesota), Harry A. Millis (Chicago), Lloyd W. Mints (Chicago), Harold G. Moulton (Brookings), Ernest M. Patterson (Pennsylvania), Chester A. Phillips, (Iowa) Henry Schultz (Chicago), Henry C. Simons (Chicago), Charles S. Tippets (Buffalo), Jacob Viner (Chicago), John H. Williams (Harvard), Chester W. Wright (Chicago), Ivan Wright (Illinois), Theodore O. Yntema (Chicago). Among those who were at the conference, but did not sign the "Recommendations" were Gottfried von Haberler (Vienna, visiting Harvard), Henry Parker Willis (Columbia), and Paul H. Douglas (Chicago).
21. If, however, we follow Don Patinkin (1969) and George Tavlas (1997, 1998a, 1998b), and focus on advocacy of public works policies as a means of injecting money into circulation as a key characteristic of Chicago thinking, then it should be noted that a brief reference to this position occurs in Jacob Viner's contribution to the informal discussions that took place at the Harris foundation conference, during the session of 29 January titled "What Should be Done in the Present Emergency". He argued that earlier experience with public works expenditures was irrelevant to the current situation because, among other things, "none [were] connected with a program of expansion of currency or banking funds" (Norman Wait Harris Memorial Foundation 1932, 245). Steindl (1995, 84-85) also quotes this passage, but cites Viner 1933 as the principal source for his advocacy of this typical Chicago position. Laidler (1999, 237-9) also dates its emergence from 1933, and now notes that an explicit reference to Viner 1933 was inadvertently omitted from or edited out of this passage.
22. It must be recalled that, contrary to later myths surrounding the so-called "Keynesian Revolution", support for vigorous open market operations was no novelty at this time - e.g., Keynes (1931), Hawtrey (1932) - nor was advocacy of expansionary fiscal policy - e.g., Pigou (1927), Robertson (1928), Douglas and Director (1931). However, all of the last four above-mentioned advocates of expansionary fiscal policy based their support on a belief that monetary policy measures, including open-market operations, were too weak to engender recovery. Thus, the main claim to originality of the Currie, Ellsworth and White Memorandum and the Harris Conference "Recommendations" is that they both, and particularly the first, canvassed the joint and consciously coordinated use of monetary and fiscal measures at a very early stage of the Depression. In this connection it might be noted that Tavlas (1977, 1997, 1998a, 1998b) has long taken the view that Douglas is a key figure in the Chicago tradition, and that his 1931 book, written with his then research assistant Aaron Director, is one of its important documents. In our view, this book's pessimism about the effectiveness of expansionary monetary policy, puts it outside that tradition as it is usually understood. Douglas's earlier and later espousal of underconsumptionism also seems to separate him from an intellectual tradition based on the quantity theory. See Laidler 1999, 206-11, 222-28, and Steindl 1995, 93-94, for further discussions.
23. The reader's attention is drawn to the fact that Williams here estimates the total amount of Federal reserve assets needed to establish conditions for the further pursuit of expansionary policy, while Currie, Ellsworth, and White estimate the amount by which such assets need to be increased if monetary policy is to exercise an expansionary effect. According to Friedman and Schwartz (1963, 347-8), the open market purchase program of 1932, which lasted from April till July of that year, resulted in the system acquiring roughly one billion dollars worth of government securities. About half a billion of this increase was offset by an outflow of gold, but a reversal of gold movements thereafter saw gold holdings increase slightly over the year as a whole. However, discounts and bills bought (mainly the former) fell by half a billion between July 1932 and January 1933. Overall, the operation was sufficiently strong to keep the stock of high powered money expanding slowly during 1932, and to stabilize the growth rate of the money supply in the second half of the year. Note that Currie, Ellsworth, and White, who were optimistic that member banks "out of debt and in possession of surplus reserves could be… relied upon to bring about an expansion of deposits," did not foresee the growth in the ratio of reserves to deposits that would continue throughout 1932. But this was partly because they had linked their advocacy of open-market purchases with a call for the government to increase its borrowings from banks, just as Currie (1931, 236) had done.
24. In 1930 the national income, according to the National Industrial Conference Board, showed a decline from the peak year 1929 of 14 billion dollars, or 10 billion dollars from the average of 1927-28-29. For 1931 the decline has been considerably greater. During the three years 1917-18-19 the total federal government expenditures B converted into 1931 dollars B were only about 17 billions, and of that sum a portion was expended for normal government purposes and a larger portion consisted of loans to the Allies. In the 24 months from January 1, 1930 to January 1, 1932 the loss has amounted to double the money expenditure caused by the war, and if the situation continues, it will double again before the year is over.

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MEMORANDUM ON ANTI-DEPRESSION POLICIES