A Program for Monetary Stability

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A Program for Monetary Stability is a book by the US economist Milton Friedman. It has been published by Fordham University Press in 1960 with consecutive re-prints appearing in 1961, 1963, 1965, 1969, 1970, 1975, and 1980.[1] In the Prefatory Note Friedman states that the book is a revised and expanded version of the third of the Moorhouse I. X. Millar Lecture Series, which he gave at Fordham University in October 1959. At the same time, he claims that the book has resulted from the joint research with Anna Schwartz under the NBER project.[2]

Contents

The book comprises four chapters:[1]

  1. The Background of Monetary Policy:
    depressions before the establishment of the Federal Reserve: the 1837-1843 period, 1873-1879, 1890s, and 1907-1908, concluding that almost all of them were associated with monetary developments, except for the last episode.[6] He reviews the record after the establishment of FED claiming that after 1913 there was larger monetary instability. He states that every major economic disturbance, inflation and contraction, has been accompanied by a significant monetary disturbance. He states, “the central problem is not to construct a highly sensitive instrument that can continuously offset instability introduced by other factors, but rather to prevent monetary arrangements from themselves becoming a primary source of instability.”[7]
  2. The Tools of the Federal Reserve System:
    profitability.[12] He concludes that open market operations should be the monetary policy instrument for several reasons: they are impersonal, they can be used continuously on a day-to-day basis, the operations can be reversed within a day, their amount can be varied, they need not be announced publicly so they do not cause any speculation about their future course, they do not affect bank profitability, they enable Fed to determine the amount of high-powered money more precisely, and the link between Fed's actions and the stock of money is more direct and predictable.[13]
  3. Debt Management and Banking Reform:
    depository institutions, which would receive demand deposits covered by 100% reserves; and investment trust or brokerage firms, which would be able to issue shares and bonds and to lend money and to invest in securities. He proposes that FED would pay interest on the banks’ reserves.[21]
  4. The Goals and Criteria of Monetary Policy:
    monetary aggregates as a guide of monetary policy, because they are under direct control by the central bank. Specifically, he proposes the fixed growth of the money stock suggesting an annual growth between 3 and 5%.[25]

At the end of the book Friedman lists his recommendations as follows:[26]

  • With respect to FED: Fed should use its open market operations to provide a steady rate of 4% growth in the stock of money; to repel its obligation to keep 25% gold reserve; it should pay market interest rate on bank's deposits; repeal interest rate controls on bank deposits; repeal control over margin requirements for securities; repeal its loans and discount rate; repeal variable reserve requirements; enable Fed to issue its own securities.
  • With respect to Treasury: eliminate public debt management by the Treasury and give this function to the Fed; alternatively, issue only short-term bills and long-term bonds at regular auctions with the same price paid by the buyers and rely either on deposits in commercial banks or deposits in Fed banks; eliminate the official gold price and move to flexible exchange rates; retire US notes and permit only Fed to issue notes.
  • With respect to commercial banks: 100% reserve requirement for deposit banks with free entry in the deposit taking business; alternatively, make reserve requirements the same for all banks and deposits; repeal the prohibition to pay interest on demand deposits and the control of interest rates on time deposits.

Reviews

In its review,

Federal Reserve Board". Similarly, The Wall Street Journal calls the book "penetrating" arguing that "it can be recommended for a good look at the real roots of inflation - the look that thus far has not been widespread enough, among enough people."[1]

Notes

  1. ^ a b c Milton Friedman, A Program for Monetary Stability. New York: Fordham University Press, 1960.
  2. ^ Milton Friedman, A Program for Monetary Stability. New York: Fordham University Press, 1960, pp. xi-xii.
  3. ^ Milton Friedman, A Program for Monetary Stability. New York: Fordham University Press, 1960, pp. 1-23.
  4. ^ Milton Friedman, A Program for Monetary Stability. New York: Fordham University Press, 1960, p. 7.
  5. ^ Milton Friedman, A Program for Monetary Stability. New York: Fordham University Press, 1960, p. 8.
  6. ^ Milton Friedman, A Program for Monetary Stability. New York: Fordham University Press, 1960, pp. 10-13.
  7. ^ Milton Friedman, A Program for Monetary Stability. New York: Fordham University Press, 1960, pp. 22-23.
  8. ^ Milton Friedman, A Program for Monetary Stability. New York: Fordham University Press, 1960, pp. 24-51.
  9. ^ Milton Friedman, A Program for Monetary Stability. New York: Fordham University Press, 1960, pp. 24-30.
  10. ^ Milton Friedman, A Program for Monetary Stability. New York: Fordham University Press, 1960, pp. 30-35.
  11. ^ Milton Friedman, A Program for Monetary Stability. New York: Fordham University Press, 1960, pp. 35-45.
  12. ^ Milton Friedman, A Program for Monetary Stability. New York: Fordham University Press, 1960, pp. 45-50.
  13. ^ Milton Friedman, A Program for Monetary Stability. New York: Fordham University Press, 1960, pp. 50-51.
  14. ^ Milton Friedman, A Program for Monetary Stability. New York: Fordham University Press, 1960, pp. 52-76.
  15. ^ Milton Friedman, A Program for Monetary Stability. New York: Fordham University Press, 1960, pp. 52-53.
  16. ^ Milton Friedman, A Program for Monetary Stability. New York: Fordham University Press, 1960, p. 55.
  17. ^ Milton Friedman, A Program for Monetary Stability. New York: Fordham University Press, 1960, pp. 58-59.
  18. ^ Milton Friedman, A Program for Monetary Stability. New York: Fordham University Press, 1960, pp. 60-63.
  19. ^ Milton Friedman, A Program for Monetary Stability. New York: Fordham University Press, 1960, pp. 63-65.
  20. ^ Milton Friedman, A Program for Monetary Stability. New York: Fordham University Press, 1960, pp. 65-68.
  21. ^ Milton Friedman, A Program for Monetary Stability. New York: Fordham University Press, 1960, pp. 68-75.
  22. ^ Milton Friedman, A Program for Monetary Stability. New York: Fordham University Press, 1960, pp. 77-99.
  23. ^ Milton Friedman, A Program for Monetary Stability. New York: Fordham University Press, 1960, pp. 77-84.
  24. ^ Milton Friedman, A Program for Monetary Stability. New York: Fordham University Press, 1960, p. 85.
  25. ^ Milton Friedman, A Program for Monetary Stability. New York: Fordham University Press, 1960, pp. 85-92.
  26. ^ Milton Friedman, A Program for Monetary Stability. New York: Fordham University Press, 1960, pp. 100-101.
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