Milton Friedman on Monetary policy and the Federal Reserve
The changes in Federal Reserve policy announced by chairman Paul Volcker on Saturday evening, Oct. 6, produced a turbulent week in the financial markets of the world. Yet it will be many months, perhaps even years, before the real meaning of those changes is fully revealed. Perhaps that very uncertainty produced the turmoil.
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.
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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/volcker-october-6-real-meaning-months-or-years-1979
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He also said
The Fed should operate entirely by deciding (and announcing) in advance the changes in the monetary base (currency plus deposits at Federal Reserve Banks) required to achieve its monetary targets. If it wishes to do so, the Fed can control the base almost precisely from week to week through purchases and sales of government securities.
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 PolicyColumn, 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. 20026Checked against the sourceRead the originalThe 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 PolicyColumn, 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. 20026Checked against the sourceRead the originalAnalysis of the supply of money, and in particular of changes in the supply of money, is simple in principle but extremely complex in practice, both in our hypothetical world and in the current real world. Simple in principle, because the supply of money is whatever the monetary authorities make it; complex in practice, because the decisions of the monetary authorities depend on numerous factors.
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