A Program for Monetary Stability

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. 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.

Contents

The books comprises four chapters:

1. The Background of Monetary Policy: In this chapter, Friedman first explains why government should intervene in monetary and banking questions. Although he proclaims himself a liberal, he thinks there are good reasons for not leaving monetary issues entirely to the market forces because with fiduciary money the government should prevent fraud and enforce contracts. Furthermore, he argues that “some external limit must be placed on the volume of fiduciary currency in order to maintain its value”. Also, issuing fiduciary money is a technical monopoly and this activity produces externalities, so all this serves as additional arguments for the role of government, which should provide stable monetary framework on a par with the stable legal framework. As a result, he claims that “there is probably no other area of economic activity with respect to which government intervention has been so uniformly accepted.” Then, he reviews the historical experience with monetary matters in the USA by looking to different historical periods. Specifically, he reviews the major depressions before the establishment of FED: 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. Then, he reviews the record after the establishment of FED claiming that after 1913 there was larger monetary instability. In the conclusion he states that every major economic disturbance, inflation and contraction, has been accompanied by a significant monetary disturbance. This makes him to conclude that “the central problem is not to construct a highly sensitive instrument that can continuously offset instability introduced by other factor, but rather to prevent monetary arrangements from themselves becoming a primary source of instability.”
2. The Tools of the Federal Reserve System
3. Debt Management and Banking Reform
4. The Goals and Criteria of Monetary Policy

Reviews

In its review, The Journal of Finance describes the book as "simple and logical, the style extremely lucid and readable... This book... bristles with suggestions, brilliant analysis, and numerous recommendations - some old, some new, some deserving wide support, others that are provocative, radical, even brash. One would have to look far to find so much controversial material in such small compass... Everyone who reads this book will admire the ingenuity and mental acuteness displayed by a very competent economist." The American Economic Review describes the book as "provocative" whereas Review of Social Economy claims that "this excellent, though provoking book... makes us better aware of the fundamental problems... of a modern economic world". According to The Christian Science Monitor Friedman "offers sweeping suggestions for reforming the monetary and banking systems of the United States" and "introduces interesting proposals for altering the monetary instruments currently employed by the 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."