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Friedman was No Fan of Fed Discretion

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Here’s a letter to the Washington Post:

Nicholas Wapshott asserts that Milton Friedman “believed that the Fed has a right to manage the national economy” (“How conservatives misread and misuse Milton Friedman [2],” July 28).

Nothing could be further from the truth.

Throughout his career, Friedman deeply distrusted central bankers.  For years he sought to eliminate Federal Reserve discretion with his “k-percent rule” under which (quoting Friedman from 1960) “the stock of money [should] be increased at a fixed rate year-in and year-out without any variation in the rate of increase to meet cyclical needs.”*  And even though Fed policy from the early 1980s until he died in 2006 became, in his view, more responsible, Friedman’s distrust of Fed policymakers continued to grow.  Friedman became so worried about this discretion that he declared, just before he died, that his “first preference would be to abolish the Federal Reserve.”**

While Milton Friedman always believed that if a central bank exists its responsibilities include insuring that the money supply doesn’t collapse, he – contrary to Mr. Wapshott’s portrayal – emphatically opposed active management of the economy by the Fed.

Donald J. Boudreaux
Professor of Economics
George Mason University
Fairfax, VA  22030

* Milton Friedman, A Program for Monetary Stability [3] (New York: Fordham University Press, 1983 [1960]), p. 93.

** Friedman’s remark occurs around the 41:45 mark in this 2006 video [4] taped at Hillsdale College.