Milton Friedman on Monetary policy and the Federal Reserve
The increase in the discount rate was a delayed response to market forces, not a vigorous Fed initiative. The discount rate, at 11 per cent, had been falling farther and farther below the rates that banks have been charging their customers; at 12 per cent, it remains below. In any event, it is of little significance. Member banks have been borrowing about $1 billion from the Fed, a trivial sum by comparison with the $800 billion that commercial banks have been lending to their customers. The discount rate is an anachronism that should be eliminated.
Context. From a Newsweek column of October 1979 on the change in Federal Reserve operating procedures that Chairman Paul Volcker announced on Saturday, October 6, 1979. The one-point rise in the discount rate was the first of the three changes he discussed.
Where this comes from
Checked against the sourceThe wording was checked against the work itself.
Cite this passage
Milton Friedman, “Has the Fed Changed Course?” (Newsweek (October 1979); reprinted in the Congressional Record, House, November 2, 1979, pp. 30902 to 30903, introduced by Representative Henry S. Reuss of Wisconsin, chairman of the House Banking Committee, together with Friedman’s letter to him of October 26, 1979, which encloses “a copy of a Newsweek column which I wrote commenting on Chairman Volcker’s statement of October 6.” The reprint gives no issue date; the column describes the week after October 6, 1979, and the letter enclosing it is dated October 26, so it ran in between, 1979), Congressional Record, November 2, 1979, pp. 30902 to 30903. https://miltonfriedman.org/quotes/discount-rate-is-an-anachronism-1979
Quoted for commentary and research. Rights in the underlying work remain with its rights holder, so cite the work itself, not only this page.
Topics
He also said
If the relation that has prevailed between money and prices for the past dozen years continues, and if the Federal Reserve continues to permit the quantity of money to grow by 10 per cent a year, inflation will proceed at a rate of about 6 per cent. Judged not by pronouncements, not by intentions, but by performance, that is the rate that monetary policy for the past four years has been directed at producing.
Context. From a June 1974 Newsweek column, written as computed price indexes showed double-digit inflation, arguing that the jump largely reflected price increases suppressed by the 1971 to 1973 controls, and that the underlying cause was money growing faster than output. A footnote to the first clause says the relation has “prevailed for as far back as the data go”, but that in the United States over the past dozen years it is “closer than the average relation.”
Perspective on InflationColumn, 1974, Newsweek (June 1974); reprinted in the Congressional Record, Extensions of Remarks, June 18, 1974, pp. 19786 to 19787, introduced by Representative Jack Kemp of New York, who calls it “his column this week in Newsweek.” The reprint gives no issue date, and the chart that ran with the column is not reproduced, Congressional Record, June 18, 1974, pp. 19786 to 19787Checked against the sourceRead the originalA Nation at Risk stimulated much soul-searching and a whole series of major attempts to reform the government educational system. These reforms, however extensive or bold, have, it is widely agreed, had a negligible effect on the quality of the public school system. Although spending per pupil has more than doubled since 1970 after allowing for inflation, U.S. students continue to rank low in international comparisons; dropout rates are high; scores on SATs and the like have fallen and remain flat. Simple literacy, let alone functional literacy, in the United States is almost surely lower at the beginning of the twenty-first century than it was a century earlier—and all this despite a major increase in real spending per student since A Nation at Risk was published.
Context. From an essay written fifty years after his 1955 article “The Role of Government in Education,” in which he first proposed school vouchers. A Nation at Risk, the 1983 report of the National Commission on Excellence in Education, quoted Paul Copperman’s warning that the educational skills of one generation would not equal those of their parents.
Free to ChooseColumn, 2005, The Wall Street Journal, June 9, 2005; reprinted in Hoover Digest 2005 No. 3 under the title “Free to Choose”Checked against the sourceRead the sourceSetting a target range for the Federal Funds interest rate should be ended. That rate, and all other interest rates, should be determined entirely by the market and abandoned as instruments of policy. The Fed’s task, as it now recognizes, is to control the quantity of money, not interest rates.
Context. From a 1980 Newsweek column arguing that the Federal Reserve could control the quantity of money if it changed its operating procedures, written months after the Fed’s October 1979 announcement that it would aim at the quantity of money rather than interest rates.
Improving Monetary PolicyColumn, 1980, Newsweek, July 28, 1980; reprinted in the Congressional Record, Extensions of Remarks, July 28, 1980, p. 20026, introduced by Representative Robert Dornan of California, who gives the column as appearing in the Newsweek issue “dated July 28, 1980”, Congressional Record, July 28, 1980, p. 20026Checked against the sourceRead the original
Think this quote is wrong, misattributed, or missing context? Report it and it gets fixed, not argued with.