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Milton Friedman on Monetary policy and the Federal Reserve

If the Fed does change its procedures and does slow monetary growth, the recession will be resumed—or a new recession will get under way—in the first or second quarter of 1980. The bright side of that coin is that steady and gradual reduction in monetary growth would end inflation and lay the groundwork for healthy, noninflationary economic growth.

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. A forecast made in October 1979; the NBER dates the next recession from January to July 1980.

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/slow-money-growth-recession-then-noninflationary-growth-1979

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He also said

  1. It follows from the propositions I have so far stated that 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, Institute of Economic Affairs, Occasional Paper 33 (the first Wincott Memorial Lecture), Reprinted in Monetarist Economics (Basil Blackwell for the IEA, 1991), pp. 16, 19
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  2. The shift in opinion of both the public and the economics profession resulted from a misunderstanding of what had actually happened. We now know, as a few knew then, that the depression was not produced by a failure of private enterprise, but rather by a failure of government in an area in which the government had from the first been assigned responsibility—“To coin money, regulate the Value thereof, and of foreign Coin,” in the words of Section 8, Article 1, of the U.S. Constitution.

    Context. From Free to Choose (1980), written with Rose D. Friedman, in the chapter “The Anatomy of Crisis” on the Great Depression. Just before, the authors write that the economic collapse “shattered the long-held belief” that monetary policy was “a potent instrument for promoting economic stability”: opinion shifted “almost to the opposite extreme” that money does not matter, and the Keynesian revolution offered a case for “extensive government intervention.”

    Free to Choose
    Book, 1980, Ch. 3 “The Anatomy of Crisis”, p. 71
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  3. There is one and only one basic cure for inflation: slowing monetary growth. But that cure is easier to state than to put into effect: witness our repeated abandonment of the cure.

    Context. From a Newsweek column of October 1977, when inflation, having fallen below 5 percent in 1976, was rising again and money growth had returned to its 1972 pace.

    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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