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Milton Friedman on Monetary policy and the Federal Reserve

However, those of us who have long favored such a change have repeatedly licked our wounds when we mistakenly interpreted earlier Fed statements as portending a change in operating procedures. I hope that this time will be different—but remain skeptical until performance matches pronouncements.

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. “Such a change” is the one he and others had pressed on the Fed for more than a decade: controlling monetary growth through the monetary base, or bank reserves, rather than the Federal funds rate.

Has the Fed Changed Course?
Column, 1979, 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, Congressional Record, November 2, 1979, pp. 30902 to 30903
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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/licked-our-wounds-skeptical-until-performance-1979

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He also said

  1. The Fed’s repeated failure to achieve its own targets has produced an impression that it cannot do so, that it is a helpless giant buffeted by events over which it has no control. That impression is false. The Fed’s failure does not reflect a lack of means. It reflects the Fed’s tardiness in adjusting its operating procedures to the change in its announced objectives.

    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 Policy
    Column, 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. 20026
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  2. However, there are two slips between the lip and the cup. First, so far this is all promise, not performance. Second, improved operating procedures can be used to inflate as well as to restrain inflation. Will the Fed’s excellent anti-inflation sentiments survive climbing unemployment in Election Year 1980?

    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. “This” is the Fed’s announced change of procedure and its promise of slower monetary growth.

    Has the Fed Changed Course?
    Column, 1979, 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, Congressional Record, November 2, 1979, pp. 30902 to 30903
    Checked against the sourceRead the original
  3. I've asked people who were in favor of free markets and free enterprise, people who formerly had been of a different view, what caused them to change their mind. I'm talking particularly not about economists, not about professionals, but generally ordinary people, most of whom had been socialist or in favor of government control at one time and had come over to free markets. And two names have come up over and over again: Hayek on the one hand, The Road to Serfdom from Hayek, and Ayn Rand on the other, Atlas Shrugged and her other books.

    Context. Asked whether reading Hayek’s The Road to Serfdom had an impact on him, in a PBS interview for the series Commanding Heights.

    Commanding Heights: Milton Friedman interview
    Interview, 2000, PBS, “On Friedrich Hayek and the Mont Pelerin meeting,” interview conducted October 1, 2000
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