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Milton Friedman on Monetary policy and the Federal Reserve

The Fed’s task is to provide stable money at home. The dollar has declined in value against the German mark, the Swiss franc and … because the Fed—with a strong assist from Congress and the Administration—has failed in that task. If we succeeded in curbing inflation, the exchange rates would take care of themselves. If we continue to fail, it only makes matters worse to use currency intervention to paper over the consequences of domestic inflation.

Context. From a 1978 column written after the Federal Reserve and the Treasury announced in early January 1978 that they would intervene in the foreign-exchange markets to support the falling dollar. The ellipsis omits the third currency, which the print misprints.

Back to the Gaming Table
Column, 1978, A column of early 1978, reprinted in the Congressional Record, Senate, February 7, 1978, p. 2590, introduced by Senator William Proxmire among “articles by Professors Friedman, Okun, and Schmidt” under the heading “Letting the Dollar Float”. The reprint names no publication and gives no issue date; the column refers to writing “in this space” in 1973, which marks it as one of his regular columns, Congressional Record, February 7, 1978, p. 2590
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Milton Friedman, “Back to the Gaming Table” (A column of early 1978, reprinted in the Congressional Record, Senate, February 7, 1978, p. 2590, introduced by Senator William Proxmire among “articles by Professors Friedman, Okun, and Schmidt” under the heading “Letting the Dollar Float”. The reprint names no publication and gives no issue date; the column refers to writing “in this space” in 1973, which marks it as one of his regular columns, 1978), Congressional Record, February 7, 1978, p. 2590. https://miltonfriedman.org/quotes/feds-task-stable-money-at-home-exchange-rates-1978

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He also said

  1. The link between the payroll tax and benefit payments is part of a confidence game to convince the public that what the Social Security Administration calls a social insurance program is equivalent to private insurance, in that, in the Administration’s words, “the workers themselves contribute to their own future retirement benefit by making regular payments into a joint fund.” Balderdash. Taxes paid by today’s workers are used to pay today’s retirees. If money is left over, it finances other government spending—though, to maintain the insurance fiction, paper entries are created in a “trust fund” that is simultaneously an asset and a liability of the government. When the benefits that are due exceed the proceeds from payroll taxes, as they will in the not very distant future, the difference will have to be financed by raising taxes, borrowing, creating money, or reducing other government spending. And that is true no matter how large the “trust fund.” The assurance that workers will receive benefits when they retire does not depend on the particular tax used to finance the benefits or on any “trust fund.” It depends solely on the expectation that future Congresses will honor promises made by earlier Congresses—what supporters call “a compact between the generations” and opponents call a Ponzi scheme.

    Context. From an article on proposals to replace part of Social Security with individual investment accounts, written while the federal budget was in surplus. The quotation inside the passage is from the Social Security Administration.

    The Biggest Ponzi Scheme on Earth
    Column, 1999, The New York Times, January 11, 1999, as “Social Security Chimeras”; reprinted with minor editorial changes in Hoover Digest 1999 No. 2
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  2. Why should they also be accepted by private persons in private transactions in exchange for goods and services? The short answer—and the right answer—is that private persons accept these pieces of paper because they are confident that others will. The pieces of green paper have value because everybody thinks they have value. Everybody thinks they have value because in everybody’s experience they have had value …

    Context. “They” are the dollar’s pieces of green paper. Just before, he notes that the courts will regard them as discharging any debts stated in dollars.

    Money Mischief
    Book, 1992, Ch. 2 The Mystery of Money
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  3. As a matter of principle, I am opposed to independence for the Federal Reserve System. Monetary policy should be administered by a governmental agency in the regular administrative hierarchy ultimately responsible to Congress.

    Context. A written statement he sent in reply to the subcommittee’s questionnaire to economists on monetary policy guidelines, printed in the committee’s December 1968 compendium with reprints he enclosed.

    Statement to the House Subcommittee on Domestic Finance
    Testimony, 1968, Compendium on Monetary Policy Guidelines and Federal Reserve Structure, Subcommittee on Domestic Finance, House Committee on Banking and Currency, 90th Congress, 2nd Session (December 1968), p. 204
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