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“Friedman’s emphasis on avoiding monetary disruptions arose, like many of his other ideas, from his study of U.S. monetary history. He had observed that, in many episodes, the actions of the monetary authorities, despite possibly good intentions, actively destabilized the economy. The leading case, of course, was the Great Depression, or as Friedman and Schwartz called it, the Great Contraction, in which the Fed’s tightening in the late 1920s and (most importantly) its failure to prevent the bank failures of the early 1930s were a major cause of the massive decline in money, prices, and output. It is likely that Friedman’s study of the Depression led him to look for means, such as his proposal for constant money growth, to ensure that the monetary machine did not get out of order. I hope, though of course I cannot be certain, that two decades of relative monetary stability have not led contemporary central bankers to forget the basic Hippocratic principle.

On the issue of inflation control, Friedman may be judged to have been a bit too pessimistic; his concerns that central banks would have neither the technical ability nor the correct incentives to control inflation led him to recommend his money-growth rule, for which a central bank could certainly be held accountable.” Read more

Remarks by Governor Ben S. Bernanke
At the Federal Reserve Bank of Dallas Conference on the Legacy of Milton and Rose Friedman’s Free to Choose, Dallas, Texas
October 24, 2003

Image by Pixomar / FreeDigitalPhotos.net.

Tom Duncan

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