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Milton Friedman on Monetary policy and the Federal Reserve

It matters little whether the Federal Reserve is unable or unwilling to exercise its independence in deeds as well as words. In either case, let us be done with the fiction that “independence” is somehow or other a bastion against inflation. Let us put the responsibility for the rate of monetary growth—and therewith for the subsequent rate of inflation—squarely and openly on the Administration and Congress.
Why Inflation Persists
Column, 1977, Newsweek (October 3, 1977); reprinted in full in the Congressional Record, Extensions of Remarks, September 29, 1977, p. 31684, introduced by Representative Parren J. Mitchell of Maryland, who gives it as appearing “in the October 3, 1977, issue of Newsweek”, Congressional Record, September 29, 1977, p. 31684
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  1. Inflation will not be stopped by words, only by actions. At the moment, we have the worst of two worlds. Nominal independence of the Federal Reserve without its effective exercise permits Congress and the President to evade responsibility for the creation of money to finance large government deficits.
    Why Inflation Persists
    Column, 1977, Newsweek (October 3, 1977); reprinted in full in the Congressional Record, Extensions of Remarks, September 29, 1977, p. 31684, introduced by Representative Parren J. Mitchell of Maryland, who gives it as appearing “in the October 3, 1977, issue of Newsweek”, Congressional Record, September 29, 1977, p. 31684
    Checked against the sourceRead the original
  2. Instead of simply requiring the Federal Reserve to report its “projections” or “targets” for monetary growth, let the Congress require the Fed to achieve specified rates of monetary growth (or specified levels of the quantity of money) within specified ranges of tolerance. That would combine responsibility and power. It would also enable the ordinary citizen to know whom to hold accountable for inflation.
    Why Inflation Persists
    Column, 1977, Newsweek (October 3, 1977); reprinted in full in the Congressional Record, Extensions of Remarks, September 29, 1977, p. 31684, introduced by Representative Parren J. Mitchell of Maryland, who gives it as appearing “in the October 3, 1977, issue of Newsweek”, Congressional Record, September 29, 1977, p. 31684
    Checked against the sourceRead the original
  3. Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output. … A steady rate of monetary growth at a moderate level can provide a framework under which a country can have little inflation and much growth. It will not produce perfect stability; it will not produce heaven on earth; but it can make an important contribution to a stable economic society.
    The Counter-Revolution in Monetary Theory
    Lecture, 1970
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