Great Experiments in American Economic Policy: From Kennedy to Reagan

Like most social scientists, economists devote much of their time to answering questions, some inconsequential but others of profound importance. One of the more important questions concerns the amount of money the federal government should place in circulation. Given that the government can alter the amount of money, how much should there be? Too little money can cause even an efficiently operating economy to grind down into a recession or worse, a depression, while too much money is inflationary. These dangers set limits on the primary U.S. monetary authority, the Federal Reserve, but they do not eliminate all room for discretion. A wide middle ground remains in which the money supply can be changed without accelerating inflation or a debilitating depression. Which strategies or goals should guide the Federal Reserve as it maneuvers between these twin perils?

One possible answer was voiced by Milton Friedman and eventually incorporated into what became known as monetarist economics, or more simply, monetarism. Friedman's answer may have remained purely academic, buried in economic treatises, if it hadn't been embraced by the top officer of the Federal Reserve Bank in 1979. But this is getting ahead of the story.

Friedman insisted that the Federal Reserve should fix a target rate of increase in the money supply and stick to it at all costs. But

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