The late, great Milton Friedman reordered thinking on the relationships between monetary policy, inflation and the economy. In essence, Friedman argued, and quite persuasively, that money supply matters. Ignore it or mismanage it and you risk trouble. Such insight had eluded the Federal Reserve early on, most notoriously during the Great Depression, which was exacerbated by the central bank’s monetary blunders.
Alas, Friedman put forth no formal treatise on the matter since he co-authored the monumental A Monetary History of the United States with Anna Schwartz in 1963. Friedman wasn’t exactly quiet in the decades since his 1963 magnum opus hit the streets. In columns, interviews with journalists and a variety of papers, the grand old chief of monetarism opined far and wide. But the paper trail is somewhat messy. In an attempt to bring some order to Friedman’s thinking during the last several decades, Edward Nelson, an economist at the St. Louis Fed, has sifted through the record and distilled what is arguably the essence of Friedman’s views since the early 1960s. Although his comments generally support his earlier findings on monetarism, Friedman wasn’t so intellectually rigid as to remain immovable when empirical evidence suggested otherwise. His thinking, in short, evolved, but mostly on tactics rather than strategy.