Edward C. Harwood
Encyclopedia
Edward C. Harwood was a 20th century economist
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

, philosopher of science
Philosophy of science
The philosophy of science is concerned with the assumptions, foundations, methods and implications of science. It is also concerned with the use and merit of science and sometimes overlaps metaphysics and epistemology by exploring whether scientific results are actually a study of truth...

, and investment advisor
Financial adviser
A financial adviser, is a professional who renders financial services to individuals, businesses and governments. This can involve investment advice, which may include pension planning, and/or advice on life insurance and other insurances such as income protection insurance, critical illness...

 who is most known for founding the nonprofit American Institute for Economic Research
American Institute for Economic Research
American Institute for Economic Research , located in Great Barrington, Massachusetts, is one of the oldest economic research organizations in the United States. Founded in 1933, AIER is an independent 501 organization that, according to its website, represents no fund, concentration of wealth, or...

 (AIER) in 1933, which entity survives today in Great Barrington, Massachusetts. AIER is a scientific research organization specialized in economics
Economics
Economics is the social science that analyzes the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek from + , hence "rules of the house"...

. It is one of the oldest nonprofit research organizations in the U.S., and one of the few that accepts no government or foundation grants. It is the parent of a for-profit subsidiary, American Investment Services, Inc.

Harwood also established the Behavioral Research Council (BRC) in the early 1950s with two sociologists, George A. Lundberg
George A. Lundberg
George Andrew Lundberg was an American sociologist.-Biography:...

 and Stuart C. Dodd
Stuart C. Dodd
Stuart Carter Dodd was an American sociologist and an educator, who published research on the Middle East and on mathematical sociology, and was a pioneer in scientific polling.- Biography :Stuart Dodd graduated from Princeton University in 1926...

, both professors at the University of Washington
University of Washington
University of Washington is a public research university, founded in 1861 in Seattle, Washington, United States. The UW is the largest university in the Northwest and the oldest public university on the West Coast. The university has three campuses, with its largest campus in the University...

. BRC was taken over by AIER in 1984, but some of its work continues tangentially at another nonprofit entity Harwood created called the Progress Foundation (PF), now based in Zurich, Switzerland. More specifically, today PF concerns itself with "conducting and disseminating independent research that fosters greater understanding of the factors that contribute to human progress".

Personal life

Harwood was born near Boston, Massachusetts, on October 28, 1900. His family moved to Springfield, Mass. when he was a child. His undergraduate work took place at West Point
United States Military Academy
The United States Military Academy at West Point is a four-year coeducational federal service academy located at West Point, New York. The academy sits on scenic high ground overlooking the Hudson River, north of New York City...

, from which he graduated as a military engineer in 1920. Before and after two four-year stints on Army bases in North Carolina and the Territory of Hawaii, he spent several years at Rensselaer Polytechnic Institute
Rensselaer Polytechnic Institute
Stephen Van Rensselaer established the Rensselaer School on November 5, 1824 with a letter to the Rev. Dr. Samuel Blatchford, in which van Rensselaer asked Blatchford to serve as the first president. Within the letter he set down several orders of business. He appointed Amos Eaton as the school's...

 (RPI) earning his three degrees, a B.S., a M.Eng., and an M.B.A. Thereafter in the early 1930s, he was appointed Assistant Professor of Military Science and Tactics at the Massachusetts Institute of Technology
Massachusetts Institute of Technology
The Massachusetts Institute of Technology is a private research university located in Cambridge, Massachusetts. MIT has five schools and one college, containing a total of 32 academic departments, with a strong emphasis on scientific and technological education and research.Founded in 1861 in...

 (MIT), Cambridge, Massachusetts. After four years there, he was sent to Boston where he oversaw the widening of the Cape Cod Canal for the War Department's Corps of Engineers. During this period he was also appointed Acting Corps Area Engineer for the Works Project Administration's Civilian Conservation Corps
Civilian Conservation Corps
The Civilian Conservation Corps was a public work relief program that operated from 1933 to 1942 in the United States for unemployed, unmarried men from relief families, ages 18–25. A part of the New Deal of President Franklin D...

 program.

While living in the Cambridge area, Harwood associated with a number of businessmen and academics who were interested in his business cycle research. One of them was Vannevar Bush
Vannevar Bush
Vannevar Bush was an American engineer and science administrator known for his work on analog computing, his political role in the development of the atomic bomb as a primary organizer of the Manhattan Project, the founding of Raytheon, and the idea of the memex, an adjustable microfilm viewer...

, at the time Vice President of MIT
Massachusetts Institute of Technology
The Massachusetts Institute of Technology is a private research university located in Cambridge, Massachusetts. MIT has five schools and one college, containing a total of 32 academic departments, with a strong emphasis on scientific and technological education and research.Founded in 1861 in...

, who, along with others, encouraged him to found the scientific research nonprofit AIER
American Institute for Economic Research
American Institute for Economic Research , located in Great Barrington, Massachusetts, is one of the oldest economic research organizations in the United States. Founded in 1933, AIER is an independent 501 organization that, according to its website, represents no fund, concentration of wealth, or...

. He did so in 1933 and began publishing a newsletter for the educated layperson. The newsletters described the ramifications of current economic events and the results of statistical research on the business cycle and various market sectors. AIER's first booklet publication was entitled, "What Will Devaluation Mean To You?". Soon AIER
American Institute for Economic Research
American Institute for Economic Research , located in Great Barrington, Massachusetts, is one of the oldest economic research organizations in the United States. Founded in 1933, AIER is an independent 501 organization that, according to its website, represents no fund, concentration of wealth, or...

 registered with the SEC and began publishing investment advice and managing a few customer accounts. (Today, this work is carried on by a wholly owned subsidiary, American Investment Services, Inc.) Harwood became a popular speaker on the problems with monetary inflating and began touring the country speaking to bankers associations and other professional groups. He retired from military service in 1938 and took up full-time economic and philosophical research at AIER
American Institute for Economic Research
American Institute for Economic Research , located in Great Barrington, Massachusetts, is one of the oldest economic research organizations in the United States. Founded in 1933, AIER is an independent 501 organization that, according to its website, represents no fund, concentration of wealth, or...

, which by this time was housed in a building just off the Harvard
Harvard University
Harvard University is a private Ivy League university located in Cambridge, Massachusetts, United States, established in 1636 by the Massachusetts legislature. Harvard is the oldest institution of higher learning in the United States and the first corporation chartered in the country...

 campus in Cambridge.

His research and writing activities were interrupted in 1941 when he reenlisted in the Army to serve two years in England and two more in the Pacific on the islands of Leyte
Leyte Island
Leyte is an island in the Visayas group of the Philippines.The island measures about 180 km north-south and about 65 km at its widest point. In the north it nearly joins Samar, separated by the San Juanico Strait, which becomes as narrow as 2 km in some places...

 and Luzon
Luzon
Luzon is the largest island in the Philippines. It is located in the northernmost region of the archipelago, and is also the name for one of the three primary island groups in the country centered on the Island of Luzon...

 under General "Pat" Casey
Hugh John Casey
Hugh John Casey was a Major General in the United States Army. A 1918 graduate of the U.S. Military Academy at West Point, Casey served in Germany during the Occupation of the Rhineland...

 and General MacArthur
Douglas MacArthur
General of the Army Douglas MacArthur was an American general and field marshal of the Philippine Army. He was a Chief of Staff of the United States Army during the 1930s and played a prominent role in the Pacific theater during World War II. He received the Medal of Honor for his service in the...

. Harwood advanced to the rank of Colonel and earned the Legion of Merit and a Bronze Star. After his return, he devoted the rest of his life to his work in economics, investing, and scientific methodology. He resided for the most part in Great Barrington, Massachusetts, but also spent a lot of time in Bermuda, in Lugano, Switzerland, and in Montecito, California.

He was married twice, first to Harriet Haynes with whom he had three children (Marjorie, Edward, and Richard), and second to Helen Fowle with whom he had four children (William, Eve, Frederick, and Katherine). When he died on December 16, 1980, he had thirteen grandchildren and one great-grandchild.

Economics and Philosophy of Science

Harwood was an autodidact in economics in the style of Henry George, although he got two Masters degrees from RPI, one in civil engineering and one in business administration. Harwood's private studies on economics and on the philosophy of science began as a vocation in his early twenties, in the well-stocked libraries of the various Army bases where he resided. By 1928, he had become so learned that his articles on business and monetary conditions were published in well-known financial periodicals of the day such as The Annalist [sic] (a New York Times Company
The New York Times Company
The New York Times Company is an American media company best known as the publisher of its namesake, The New York Times. Arthur Ochs Sulzberger, Jr. has served as Chairman of the Board since 1997. It is headquartered in Midtown Manhattan, New York City....

 publication later sold to Business Week), Barron's, the Wall Street Magazine, Coast Investor & Industrial Review, Bankers Magazine, and others. By the time he was 40, more than 80 articles had been published.

His study of banking history and of the American economy convinced him in the late 1920s that the U.S. was headed for a crisis, and he predicted this in a number of his articles (see a few listed below). In 1932 he wrote his first full-length book, Cause and Control of the Business Cycle, and it was published by the Financial Publishing Company of Boston, Massachusetts. For its exposition of monetary phenomena in clear layperson's language, the book earned a recommendation of the Book-of-the-Month Club and was used as a college text by professors at Dartmouth and Stanford. The book sets forth his economic theories and gives Harwood's intricately derived but simply illustrated graph (the Harwood Index of Inflating) showing the amount of purchasing media in circulation, divided into various subcategories that are either "inflationary" or "noninflationary," according to clearly explained definitions.

Harwood's detailed analysis of statistics and economic history led him to a number of what he considered to be "warranted assertions". One of these was the following: that two market-evolved monetary mechanisms functioned relatively well together, and they were the cornerstones of several healthy national economies, at least up until the creation of the Federal Reserve System. These two mechanisms were (1) the gold standard
Gold standard
The gold standard is a monetary system in which the standard economic unit of account is a fixed mass of gold. There are distinct kinds of gold standard...

, and (2) what he called "sound commercial banking". Sound commercial banking, in his view, required three things: (1) the separation of the commercial banking function from the investment banking function; (2) that commercial banks be the only entities allowed to create and issue self-liquidating money (or what he preferred to call "purchasing media") based only upon commercial transactions for things coming to market in the short term; and (3) that investment banking departments should not create money, but rather only issue credit based on real savings, which are, in fact, claims on existing things, i.e. delayed consumption. Harwood's analysis brought him to the further conclusion that the abandonment of the gold standard, the loss of sound commercial banking principles, and the subtle growth of the Federal Reserve's powers to create money in place and stead of the commercial banks would, in the long run, disrupt monetary equilibrium and undermine the U.S. dollar.

He defined purchasing media for the academic community in very specific terms. However, for the layperson, he recommended that people think of purchasing media as coins, paper currency, or checks that are claims on goods or services, much as is implied in the expression "promissory notes." He used the metaphor of a baggage claim check. Banks issuing paper notes should only do so, he claimed, in direct ratio to the amount of gold in their vaults (under a gold standard
Gold standard
The gold standard is a monetary system in which the standard economic unit of account is a fixed mass of gold. There are distinct kinds of gold standard...

) and to the things their customers were bringing to market; and any issuance above that amount would be, by definition, "inflationary," i.e. it will tend to cause price increases over and above those caused by direct cause-effect relationships among normal supply and demand forces. Such "inflationary" price increases are different from those caused, for example, by a shortage of supply or by a rise in demand, because they are caused by a devaluation of the purchasing media itself through excessive issuance.

Not only did Harwood predict the Great Depression
Great Depression
The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...

, but he was one of the first investment advisors to steer his clients into gold-related investments before the 1970s dollar devaluation and abandonment of the gold standard. By the late 1950s Harwood had concluded that monetary policy would lead to the depreciation of the dollar. By 1958 his research noted an outflow of gold from the U.S. and the beginning of an increase in the gold price on the London market. By September 1958 he was predicting another devaluation of the dollar and began recommending the purchase of gold mining shares to protect one's savings. This fact probably makes him one of the original Gold Bugs
Gold bug
Gold Bug is a term used to describe investors who are very bullish on buying the commodity gold . It can also be used to refer to a person who opposes or criticizes the use of fiat currency and supports a return to the use of the Gold Standard or some other currency system based on the value of...

 of the 20th century.

BRC, the nonprofit Harwood created with Lundberg
George A. Lundberg
George Andrew Lundberg was an American sociologist.-Biography:...

 and Dodd
Stuart C. Dodd
Stuart Carter Dodd was an American sociologist and an educator, who published research on the Middle East and on mathematical sociology, and was a pioneer in scientific polling.- Biography :Stuart Dodd graduated from Princeton University in 1926...

, set forth a set of rules for the methodology to be used in the social (otherwise known as behavioral) sciences (e.g., psychology, sociology, economics), which rules are similar to those so effectively used in the harder sciences (e.g., physics, biology, chemistry). What BRC referred to as the "transactional approach" (not to be confused with Transactional Analysis
Transactional analysis
Transactional analysis, commonly known as TA to its adherents, is an integrative approach to the theory of psychology and psychotherapy. It is described as integrative because it has elements of psychoanalytic, humanist and cognitive approaches...

), followed very specific procedures of inquiry best described by John Dewey
John Dewey
John Dewey was an American philosopher, psychologist and educational reformer whose ideas have been influential in education and social reform. Dewey was an important early developer of the philosophy of pragmatism and one of the founders of functional psychology...

 and Arthur F. Bentley
Arthur F. Bentley
Arthur Fisher Bentley was an American political scientist and philosopher who worked in the fields of epistemology, logic and linguistics and who contributed to the development of a behavioral methodology of political science.-Biography:He received his Bachelor of Arts in 1892 and his Ph.D...

 in their book, Knowing and the Known
Knowing and the Known
Knowing and the Known is a 1949 book by John Dewey and Arthur Bentley.- Overview :As well as a Preface, an Introduction and an Index, the book consists of 12 chapters, or papers, as the authors call them in their introduction...

. Harwood also studied and adhered to some of the work of Charles Sanders Peirce and William James
William James
William James was a pioneering American psychologist and philosopher who was trained as a physician. He wrote influential books on the young science of psychology, educational psychology, psychology of religious experience and mysticism, and on the philosophy of pragmatism...

.

Early in his life, Harwood developed great respect for the Founding Fathers of America and for their forebears, who had developed a wise reverence for certain individual liberties, property rights, the sanctity of contracts, and the necessity to limit government from its own expansive tendencies; and for the protections of all of these that are embodied in the U.S. Constitution. His clear explanations of complicated monetary phenomena helped thousands of readers understand economic events and enabled them to preserve the value of their savings throughout the 20th century's monetary experiments on and off the gold standard. A couple of years before his death, Harwood was honored by becoming the first of three living economists to have his likeness engraved on a gold piece. The others were Nobel prizewinner Friedrich Hayek
Friedrich Hayek
Friedrich August Hayek CH , born in Austria-Hungary as Friedrich August von Hayek, was an economist and philosopher best known for his defense of classical liberalism and free-market capitalism against socialist and collectivist thought...

 and well known economics author Henry Hazlitt
Henry Hazlitt
Henry Stuart Hazlitt was an American economist, philosopher, literary critic and journalist for such publications as The Wall Street Journal, The Nation, The American Mercury, Newsweek, and The New York Times...

. Harwood's colleagues nicknamed him "the George Washington of the modern sound money movement". AIER
American Institute for Economic Research
American Institute for Economic Research , located in Great Barrington, Massachusetts, is one of the oldest economic research organizations in the United States. Founded in 1933, AIER is an independent 501 organization that, according to its website, represents no fund, concentration of wealth, or...

 continues to serve the public today.

Selected Published Articles Predicting the 1929 Great Depression

  • Harwood, Edward C. (1928), "The Probable Consequences to Our Credit Structure of Continued Gold Export," The Annalist (March 23, 1928)
  • – (1928), "The Underlying Causes of Our Recent Prosperity: Why the End is Near," The Annalist (April 13, 1928)
  • – (1929), "Speculation in Securities vs. Commodity Speculation," The Annalist (February 15, 1929)
  • – (1929), "Deterioration of the American Bank Portfolio--a Ratio Analysis, 1920-28," The Annalist (August 2, 1929)

Selected Works

  • Harwood, Edward C. (1932), Cause and Control of the Business Cycle, Boston: Financial Publishing Company; (1974) 10th ed. published as "Cause and Control of the Business Cycle," Economic Education Bulletin (AIER) Volume XIV (No. 9) LCCN 60000331
  • –, Donald G. Ferguson, et al. (1941), What will Inflation and Devaluation Mean to You?, Cambridge, MA: AIER, LCCN 41017897
  • –, Helen Fowle (1950), How to Make Your Budget Balance, Great Barrington, MA: AIER LCCN 50002703
  • – (1955), "Reconstruction of Economics," Economic Education Bulletin, Great Barrington, MA: AIER, Volume X (No. 10)
  • – (1956), "Useful Economics," Economic Education Bulletin, Great Barrington, MA: AIER, Volume X (No. 5)
  • –, Rollo Handy (1973), Useful Procedures of Inquiry, Great Barrington, MA: Behavioral Research Council, LCCN 72093865, ISBN 0913610003
  • –, Rollo Handy (1973), Current Appraisal of the Behavioral Sciences, Great Barrington, MA: Behavioral Research Council, LCCN 73079255, ISBN 0913610011
  • – (1976), The Money Mirage, Hamilton, Bermuda: Freedom Trust
  • –, Many articles in the Research Reports and variously named economic bulletins (available to Annual Sustaining Members of AIER at their website), investment guides, and other booklets published by AIER and its former investment advisor subsidiary, American Institute Counselors, Inc.
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