MV=PQ

Monetary History of the United States is one of the greatest and most historic economics book written. It revolutionized economics. The only other book that is clearly greater is The Wealth of Nations by Adam Smith. I highly recommend both books.

One word of warning. Monetary History should be supplemented with Peter Temin's Did Monetary Forces Cause the Cause the Great Depression?

I also highly recommend Essays on the Great Depression by Ben Bernanke, the Chairman of the Federal Reserve. The Great Depression is the ultimate riddle and Bernanke solves it.

Friedman and Schwartz(1963)did a great deal of worthwhile data compilation.The problem(an identical problem occurs in the 1956 work of Philip Cagan) occurs when they attempt to fit the data to the standard quantity of exchange equation MV=PO,where M is the supply of money(Friedman always selects MI to be equal to M),V is the velocity,P is the price level,O is real GNP(GDP),and PO is nominal GNP(GDP).The correct specification of the equation of exchange is M(Vw)=PO,where w is defined on the unit interval between 0 and 1.w is Keynes's measure of the weight of the evidence or Ellsberg's (rho)measure of the confidence a decision maker has in the information set he will use to calculate the probabilities of different outcomes.Friedman is a lifelong adherent and advocate of the Ramsey-De Finetti-Savage subjective approach to probability which argues that ,while the existence of vagueness(J M Keynes's weight of the A Treatise on Probability(uncertainty of the General Theory) or Ellsberg's ambiguity)is undeniable,it can't be modeled in a decision theoretic context.Only risk,represented by a normal probability distribution and its mean+ or- 3 standard deviations,can be operationalized.Friedman's section 4 of chapter 12,titled "Expectations about Stability ",discusses exactly what Savage called vagueness,Keynes called uncertainty,liquidity preference being a function of uncertainty AND NOT RISK,AND ELLSBERG CALLED AMBIGUITY.Friedman has no variable in his model to deal with it.He admits this on the second paragraph of p.675.Friedman's analysis abstracts from the role that expectations,confidence,uncertainty,and the flexibility of money(Keynes's liquidity preference)play in the demand for money .All of the Friedman-Schwartz analysis needs to be redone using the correct specification of the equation of exchange.Friedman's existing specification only holds in the special case where w=1.0,i.e.,that there is no uncertainty,ambiguity,or vagueness. MV=PO is a correct specification of the equation of exchange only if risk,measured by the normal probability distribution's standard deviation(or the standard deviation divided by the mean),is the only decision theoretic variable.All current forms of the equation of exchange ignore ambiguity and/or uncertainty and conflate risk with uncertainty.The equation of exchange has been misspecified from Hume to Friedman and Lucas.Only Keynes correctly derived a generalized equation of exchange.Keynes's analysis is contained on p.209 and chapter 21 of the GT.Lucas has already admitted that his framework of analysis breaks down completely if Keynesian uncertainty or Ellsbergian ambiguity prevents him from using his normal probability distribution.The massive 50 plus years of statistical analysis by Benoit Mandelbrot of data from all financial markets(stock,money,commodities,futures,currencies,bond) provides overwhelming empirical support for not using the normal distribution.Keynes,of course,would agree that, if the only decision theoretic variable of consequence is risk(Mandelbrot's mild risk),velocity would be stable or predictable.The fact that velocity is not constant or predictable means that Friedman's monetarism is only a very special case of Keynes's general theory,which,in terms of Mandelbrot's definitions,deals with mild and wild risk.Friedman can only deal with mild risk.