Money Melee

Forty-four years ago, at the end of the brief book A Program for Monetary Stability, the legendary Chicago economist Milton Friedman offered a rather tentative proposal. He said it might be best if the Federal Reserve gave up trying to fine- tune both the real economy and inflation, and instead simply increased the quantity of money at a fixed rate. That was long before we had unregulated interest rates and money-market funds, so Friedman recommended measuring money relatively simply—as “currency plus all commercial bank deposits.” He opined, humbly and tentatively, that “a rate of increase of 3 to 5 percent per year might be expected to correspond with a roughly stable price level for this particular concept of money.”

“Hold on to your hats and prepare to be amazed,” Financial Times columnist Simon London wrote recently: “Milton Friedman has changed his mind.” The celebrated Nobel laureate had told Mr. London the following: “The use of quantity of money as a target has not been a success . . . I’m not sure I would as of today push it as hard as I once did.” Professor Friedman’s brief remark caused quite a stir—particularly in England, where all policies of the Thatcher era are routinely lumped together in scorn by the Left as “monetarism.” William Keegan, writing in The Observer, called Friedman’s comment “the economic quote of the month—and probably the decade.”

About the Author

Alan Reynolds

Alan Reynolds, National Review’s economics editor from 1972 to 1976, is a senior fellow at the Cato Institute and the author of Income and Wealth.

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Forty-four years ago, at the end of the brief book A Program for Monetary Stability, the legendary Chicago economist Milton Friedman offered a rather tentative proposal. He said it might be best if the Federal Reserve gave up trying to fine- tune both the real economy and inflation, and instead simply increased the quantity of money at a fixed rate. That was long before we had unregulated interest rates and money-market funds, so Friedman recommended measuring money relatively simply—as “currency plus all commercial bank deposits.” He opined, humbly and tentatively, that “a rate of increase of 3 to 5 percent per year might be expected to correspond with a roughly stable price level for this particular concept of money.”

“Hold on to your hats and prepare to be amazed,” Financial Times columnist Simon London wrote recently: “Milton Friedman has changed his mind.” The celebrated Nobel laureate had told Mr. London the following: “The use of quantity of money as a target has not been a success . . . I’m not sure I would as of today push it as hard as I once did.” Professor Friedman’s brief remark caused quite a stir—particularly in England, where all policies of the Thatcher era are routinely lumped together in scorn by the Left as “monetarism.” William Keegan, writing in The Observer, called Friedman’s comment “the economic quote of the month—and probably the decade.”