Knowledge that Transforms

The author critically examines Beckers economic approach to the study of the family as presented in his book A Treatise on the Family. In the present paper the realism of the principal assumptions of Beckers theory and his treatment of institutional effects on the family are discussed. Aspects considered include Beckers theory of income distribution and intergenerational transfer; the prevalence of altruism in family transactions compared with that of selfishness in market transactions; the incidence of divorce; changes in family structure throughout history with particular attention to the role of cultural and institutional arrangements; and the use of empirical evidence to support the theories presented.

AN EARLIER VERSION of this book was ready in second draft as long ago as 1966, as the authors Milton Friedman and Anna Schwartz, henceforth F-S, tell us in their Preface. But that version was restricted entirely to the United States. A National Bureau reading committee suggested that its scope be enlarged to cover the United Kingdom. Extending the coverage of the study to encompass the UK proved much more time consuming than had been expected. F-S now question whether the inclusion of the UK, the new material and the lengthened data period, were adequate recompense for the extra effort and long delay. They may be correct in this doubt, even though the inclusion of the UK is especially interesting for British readers. Since F-S began work on this book, much that was challenging and original in their approach, for example the relationship between monetary growth and interest rates, has been absorbed into the mainstream of economic thought. That is, of course, no criticism of the analysis, but it does mean that the book does not have quite the same punch and excitement that its publication, say, in 1966 would have engendered. Moreover, knowing that F-S were working on UK monetary data, I had been hoping for a repetition of that magical combination of historical and institutional understanding, statistical thoroughness and overall analytical brilliance that enabled F-S to illuminate the episodes of A Monetary History of the United States, but this time for the United Kingdom also. However, this was never intended to be that kind of book. It is not historical and episodic at all, strictly statistical. There is virtually no comment on the actual flesh and blood developments of British (or American) monetary history. Instead F-S have gathered together a small number of key economic series, on incomes, prices, money stock (M2 definition), interest rates, and put these series through a statistical/econometric mangle. As Thomas Mayer has indicated, this uncompromising devotion to statistical duty, unleavened by episodic and historical commentary, makes heavy reading. Nevertheless, besides compelling respect for the scholarship and thoroughness of the research, the book contains many new, important and provoking findings and analytical judgments, several of * See p. 1528, above, for publication information.

MILTON FRIEDMAN AND ANNA SCHWARTZ Monetary Trends reports a great many findings-53 are enumerated in the introduction-but paramount is the stability of the demand for money in the US and Britain over the past century. The money stock controls money income. This proposition more than anything else is the point of their painstaking investigation. Friedman and Schwartz argue against what might neutrally be called the early post-war view of the macroeconomic role of money: Velocity will move easily to reconcile any level of nominal income to any money stock. The demand for money in this view is a will-o'the-wisp, as the authors put it. Monetary policy has little influence over real activity; stabilization policy necessarily relies on fiscal instruments. The volume is completely convincing in disposing of this idea; today's reader is likely to be puzzled why so much space is devoted to a view that has no serious adherents among professional economists. Friedman and Schwartz are generals fighting an earlier war, a situation accentuated by the long lags in putting this volume into print. Though the opposing armies fighting for the early postwar view have withdrawn in total rout, a new front has opened up, and the quantity theory is fighting for its life once again. Worse yet, the new armies are fighting under the banner of free-market economics and are led by former colleagues and students of Milton Friedman. The midwest, once the stronghold of the quantity theory, is now largely occupied by the enemy. The new monetary economics views the quantity theory as nothing more than an artifact of government regulation. An economy organized along free-market principles could function without money at all (Fischer Black, 1970). It is true that the kinds of monetary regulations imposed by the American and British governments of the past century create a more-or-less stable relation between a certain class of assets called money and nominal spending (Eugene Fama, 1980), but different regulations would alter that relation. Even the real bills doctrine, anathema to quantity theorists because it invites unlimited expansion of the money supply, has advocates in the new school (Thomas Sargent and Neil Wallace, 1981). monetary system where the government is unconcerned about the money stock has been advocated by a University of Chicago economist while visiting the Hoover Institution (John Bilson, 1981). Restoring the intrinsic value of money, not limiting its quantity, has been found to be the key to successful disinflation by one member of this group (Sargent, 1982). critical summary, titled A Laissez Faire Approach to Monetary Stability, written * See p. 1528, above, for publication information.