Financial and Monetary History of the United States Economics 344: 01 Fall 2011

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Financial and Monetary History of the United States

Economics 344:01

Fall 2011
Tuesdays/Fridays 11:30-12:50

Murray 212

Professor Eugene N. White

Department of Economics

New Jersey Hall

Room 432

Rutgers University


Office hours: Mondays 11-12 and Fridays 2-3 or by appointment
Econ 320 (Intermediate Microeconomic Analysis), Econ 321 (Intermediate Macroeconomic Analysis) and Economics 322 (Econometrics). Money and Banking Econ 301 is recommended. This is an upper level elective course where you are expected to apply the knowledge and expertise that you have gained in the prerequisites.
Course Objective
This course provides a detailed overview and analysis of the evolution of the America financial and monetary policy in the United States from the colonial period to the “subprime” crisis and current recession/recovery. Through historical examples, the theoretical and empirical principles of banking, finance, and monetary policy are examined. These are the basics for a “Wall Street intellectual” who can knowledgeably read the Wall Street Journal, the Financial Times and the Economist and fluently talk about finance and money.
Attendance Policy and Academic Integrity
You are expected to attend every class. Attendance is highly correlated with performance on tests. Please do not arrive late to class. If you need to leave early, you must inform me and sit near the door. At the beginning of each class, we will discuss the assigned reading. You are expected to have read the article and to participate. If you miss a class, please report it to the university website: to indicate the date and reason for your absence.  An email is automatically sent to me.  

As always at Rutgers, you are expect to follow the University’s precepts of academic integrity. (See

Course Requirements
1. Class Participation (15 percent). You are expected to come to class, having done the assigned readings. You will be asked specific questions on the readings. You must answer 5 times correctly in the course of the semester for full credit.

2. First Exam (20 percent) October 4

3. Second Exam (20 percent) November 4

4. Book Review (25 percent) Due December 2 . On October 18, you will be given a list of books from which to choose. On October 28, you must hand in 1 page listing your choice.

5. Final Exam (20 percent), Dec 22, 8-11 pm

Note: Makeup Exams are given at the discretion of the instructor. If you anticipate an absence for any reason (religious holiday/sports event), you must inform me no later than September 27.
Required Books
Books: Ordered at the Rutgers Bookstore (all paperback)
Milton Friedman and Anna J. Schwartz, A Monetary History of the United States, 1867-1960 (Princeton: Princeton University Press, 1963).
John Kenneth Galbraith, The Great Crash 1929 (Boston: Houghton Mifflin, 1954, and many later editions, 1997 is good because it includes Galbraith’s reflections in the crash of 1987 and the tech bubble).
Michael Lewis, Liar’s Poker (Penguin Books, 1990).

Required Articles

All of these articles can be found on my Sakai website for our class.
Farley Grubb, “Benjamin Franklin and the Birth of a Paper Money Economy” (Federal Reserve Bank of Philadelphia, 2006).
Bruce D. Smith, “Money and Inflation in Colonial Massachusetts,” Federal Reserve Bank of Minneapolis Quarterly Review (Winter 1984), pp. 1-14.
Donald Kemmerer, “The Colonial Loan Office System in New Jersey, “Journal of Political Economy 74:6 (December 1939), pp. 867-874.
Richard Sylla, Robert E. Wright, and David J. Cowen, “Alexander Hamilton, Central Banker,” Business History Review 83 (Spring 2009), pp. 61-86.
Anna J. Schwartz, “The Beginning of Competitive Banking in Philadelphia, 1792-1809,” Journal of Political Economy 55:5 (October 1947), pp. 417-431.
Richard Sylla, “U.S. Securities Markets and the Banking System, 1790-1840,” Federal Reserve Bank of St. Louis Review (May/ June 1998), Vol. 8. No 3, pp. 83-98.
Hugh Rockoff, “Money, Prices and Banks in the Jacksonian Era,” in Stanley Engerman, A Reinterpretation of American Economic History (1972),
Arthur J. Rolnick and Warren E. Weber, “New Evidence on the Free Banking Era,” American Economic Review 73:5 (December 1983), pp. 1080-1091.

Michael Bordo, “The Classical Gold Standard: Some Lessons for Today”, Federal Reserve Bank of St. Louis Review 63 (May 1981), pp. 2-

Hugh Rockoff, “The Wizard of Oz,” Journal of Political Economy 98:4 (August 1990), pp. 739-760.
Eugene N. White "The Political Economy of Banking Regulation, 1864‑1933," Journal of Economic History, (March 1982).

Eugene N. White "California Banking in the Nineteenth Century: The Art and Method of the Bank of A. Levy," Business History Review 75 (Summer 2001).
J. Bradford De Long, “ Did J.P. Morgan’s Men Add Value?” in Peter Temin, ed., Inside the Business Enterprise (Chicago: University of Chicago Press, 1991), pp. 205-249
Howard Bodenhorn, “Capital Mobility and Financial Integration in Antebellum American,” Journal of Economic History 52 (September 1992), pp. 585-610.
Kenneth Garbade and William Silber, “Technology, Communication and the Performance of Financial Markets, 1840-1975,” Journal of Finance 33:3 (June 1978), pp. 819-832.
Jon Moen and Ellis Tallman, “The Bank Panic of 1907: The Role of the Trust Companies” Journal of Economics History 52:2 (June 1992), pp. 611-630.
Eugene N. White, “The Stock Market Boom and Crash of 1929 Revisited,” Journal of Economic Perspectives (Spring 1990), pp. 76-83.
Christina D. Romer, “The Nation in Depression,” Journal of Economic Perspectives 7: 2 (Spring 1993), pp. 19-39.
David Wheelock, “Monetary Policy in the Great Depression: What the Fed Did and Why” Federal Reserve Bank of St. Louis Review March/April 1992), pp. 3-28.
J. Bradford De Long, “America’s Peacetime Inflation: 1970s,” in Christina Romer and David Romer, Reducing Inflation: Motivation and Strategy (Chicago: University of Chicago Press, 1997), pp. 247-276
David Wheelock, “Lessons Learned? Comparing the Federal Reserve’s Responses to the Crises of 1929-1933 and 2007-2009,” Federal Reserve Bank of St. Louis Review (March/April 2010) 92(2), pp. 89-107.
Frederic S. Mishkin, “Over the Cliff: From the Subprime to the Global Financial Crisis,” Journal of Economic Perspectives Vol. 25, No. 1 (Winter 2011), pp. 49-70.

Preliminary Class Schedule
Sept 2 Getting Started
Sept 6 The Colonial Legacy, the Crisis of the Colonial Regime and the Seven Years War, Grubb (2006)
Sept 9 Financing the War for Independence, Smith (1984), Kemmerer (1939)
Sept 13 Hamilton and the New Constitution, Sylla, Wright & Cohen (2009)
Sept 16 Government Finance and the War of 1812, Schwartz (1947)
Sept 20 Early Banks and Financial Markets. Sylla (1998).
Sept 23 No Class

Sept 27 The Bank War and the Panic of 1837, Rockoff (1972)

Sept 30 The Free Banking Era, Rolnick and Weber (1983)

Oct 4 First Exam

Oct 7 The Civil War and its Consequences, Bordo (1981).
Oct 11 Resumption and the Politics of Silver and Gold, Friedman and Schwartz, (1963) Ch. 2, pp. 15-32, 44-58, 85-88, Ch. 3, pp. 89-97; 104-122:
Oct 14 The Gold Standard, Rockoff (1990).

Oct 18 National Banking System: Structure, Conduct & Performance, White (1982), Book Titles Handed Out.

Oct 21 What did Commercial Banks Do? What did Investment Banks Do? White (2001), De Long (1991)
Oct 25 Integration of Financial Markets, Bodenhorn (1992); Garbade and Silber (1978)
Oct 28 Financial Crises and the Macroeconomy Friedman and Schwartz (1963), Chs. 4, pp. 135-138, 152-174, 183-188 Hand In Book Choice.
Nov 2 The Crisis of 1907; Moen and Tallman (1992)
Nov 4 Second Exam
Nov 8 Founding of the Federal Reserve and World War I

Friedman and Schwartz, Ch. 5, pp. 189-207.

Nov 11 The Great Boom and Crash of 1929, White (1990); Friedman and Schwartz (1963), Ch. 6, pp. 240-270, 296-8; Galbraith (1954).
Nov 15 The Great Depression 1929-1933 Friedman and Schwartz (1963),Ch. 7 all;
Nov 18 The Great Depression, 1929-1933, Romer (1993)

Nov 22 NO CLASS F2011 (Tue Nov22 = RU Thu)

Nov 25 Thanksgiving, No Class

Nov 29 The Great Depression, 1933-1941 Reading: Friedman and Schwartz,

Ch. 8, pp. 420-434, Ch. 9, pp. 493-506, 543-545; Wheelock (1992)
Dec 2 Financing the Second World War & the Korean War, Friedman and Schwartz, Ch. 10, pp. 546-574;
Dec 3 New Deal Banking and Finance: Friedman and Schwartz (1963),

Ch. 8, pp. 434-462; Papers Due.

Dec 6 The Unraveling of the New Deal. Lewis (1989), Chs. 1-7, 10-11. Epilogue
Dec 9 The Great Moderation De Long (1997)
Dec 13 The Subprime Crisis, Recession and Recovery Wheelock (2009); Mishkin (2011).
Dec 22 FINAL EXAM, 8-11 am

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