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Milton Friedman on Monetary policy and the Federal Reserve

As an empirical matter, low-interest rates are a sign that monetary policy has been tight—in the sense that the quantity of money has grown slowly; high-interest rates are a sign that monetary policy has been easy—in the sense that the quantity of money has grown rapidly. The broadest facts of experience run in precisely the opposite direction from that which the financial community and academic economists have all generally taken for granted.
The Role of Monetary Policy
Journal article, 1968, American Economic Review 58, no. 1 (March 1968), pp. 1–17; reprinted in the House Banking and Currency Committee’s 1968 Compendium on Monetary Policy Guidelines and Federal Reserve Structure, pp. 214–224, p. 218 of the 1968 House reprint
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  1. I then attributed the divergence of promise from performance to misunderstanding. The men who run the Fed, I wrote, have “taken the behavior of interest rates rather than the quantity of money as their guide—and this mistake has led them far astray from their intended path.”
    The Inflationary Fed
    Column, 1973, Newsweek, August 27, 1973; reprinted in the Congressional Record, Extensions of Remarks, November 7, 1973, p. 36327, introduced by Representative Robert Huber of Michigan as “Mr. Milton Friedman’s article that appeared in Newsweek of August 27, 1973”, Congressional Record, November 7, 1973, p. 36327
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  2. The widespread impression that the Fed has tightened is based on the mistake of judging monetary policy by interest rates, which the Fed cannot control, rather than by the quantity of money, which it can. The quantity of money is still growing as rapidly as it has for the past four years.
    Perspective on Inflation
    Column, 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 19787
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  3. But as a matter of practical experience, no complicated society can be run solely on the command principle. It’s just impossible. And therefore, in one sense, the market is essential. There’s no way of avoiding it.
    The Open Mind
    Interview, 1977, The Open Mind, hosted by Richard Heffner, Episode “A Nobel Laureate on the American Economy” (May 3, 1977)
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