Full transcript
0:06[Music]
0:12what is monetary policy concern it's
0:17concerned fundamentally with what
0:18happens to the quantity of money what's
0:21money
0:23there's no again no natural definition
0:25of money and the first thing money is
0:29whatever you use to engage in
0:33transactions whatever it is that people
0:35are willing to accept not because they
0:38want it but because they know that
0:40somebody else will accept it in return
0:41for something they want and you know in
0:44the history of the world
0:45you can hardly name a commodity that has
0:48not been used as money at one time or
0:50another there's an island in the Pacific
0:54which uses great big stones as money the
0:57island of Yap there's a there are parts
1:01of Africa and India which for many
1:03centuries used used cowrie shells little
1:07shells that you pick up on the beach as
1:09money the colonies Virginians North
1:15Carolina and so on those southern
1:16colonies go colonies for many years used
1:19tobacco as money but of course the most
1:23the thing that has mostly been used as
1:25money historically have been silver and
1:27gold as metals but we've gotten beyond
1:31that and now we use this piece you will
1:32use pieces of paper as money the pieces
1:37of paper in your pocket the equipment of
1:40those the deposits you have in your bank
1:42on what you think you can write checks
1:43and other people will accept your
1:45cheques or you can go down to an ATM and
1:47withdraw some cash so that's a some of
1:52the paper you carry around your pocket
1:54and in one or another class of deposits
1:56and there are very different classes is
1:58money and the question is who determines
2:01how much money there is and the answer
2:05is in our present system there are there
2:12are eighteen there are nineteen people
2:15who sit around a table in Washington
2:17once every two weeks who have the power
2:21the unlimited power
2:24to double the quantity of money over the
2:26next year or to cut it in half over the
2:28next year those 19 people are the seven
2:32members of the Federal Reserve Board and
2:34the twelve presidents of the Federal
2:37Reserve banks of the Regional Federal
2:39Reserve banks only five of those twelve
2:42presidents have a vote on that Open
2:44Market Committee anytime but all twelve
2:47attend every meeting and influency
2:49action that occurs they have the
2:52unquestioned power to do this and it was
2:56the way they exercised that power during
2:58the Great Depression that was
3:00responsible for the depths of the
3:02depression it was the way they exercised
3:05that power during the 1970s that was
3:08responsible for the inflation during the
3:101970s and is fundamentally responsible
3:14for the Savings and Loan debacle so how
3:18they exercise that power makes an
3:20enormous amount of difference and in my
3:24opinion I shouldn't say opinion because
3:26I spent much of my life studying this
3:28I've written or co-authored a series of
3:31books dealing with me mono well a major
3:34book dealing with a monetary history the
3:35United States and others so this is an
3:39opinion but it's an informed opinion
3:41that is based on some evidence and work
3:43the Federal Reserve over the whole of
3:45its existence has done much more harm
3:47than good
3:49the main thing I have always argued for
3:52and I'm not sure it's the best way and
3:54indeed former student of mine who
3:56suggested what I now think it's a better
3:58way but what I have always argued for is
4:00requiring him to keep the quantity of
4:03money growing at a steady and relatively
4:06slow rate
4:08now that's they've departed from that
4:10and every single mistake is connected
4:13with the departure from that almost
4:15always after the there are one or two
4:18occasions on which the departure was
4:20justified but most of the time it has
4:22not been and the problem is how do you
4:26get that rule in law and how do you make
4:28it accountable how do you make it in the
4:31self-interest to the members of the
4:32board to follow the rule as I say there
4:36are various other ways that have been
4:37suggested but that's the essential
4:39problem is to impose rules which will
4:44keep the quantity of money from either
4:46growing very rapidly or declining very
4:48rapidly either the one or the other is
4:50bad but grows too rapidly you have
4:52inflation that declines too rapidly you
4:55have depression what we ought to aim for
4:59is a rate of growth of the money supply
5:01which gives you relatively stable prices
5:04they're always shifting their rhetoric
5:06you have to distinguish rhetoric from
5:07substance they've all whether they've
5:09often talked about paying attention to
5:11money growth but they almost never have
5:13done so and that's because they come out
5:15of a banker mentality and the banker
5:19mentality is to look at the Fed there's
5:21a credit instrument and as having
5:24something to do with interest rates it
5:26would be too complicated for this
5:27present purpose to explain that but it's
5:29a major mistake in my opinion and I
5:33believe the Fed can influence interest
5:36rates but it can't determine them but it
5:39can determine what the quantity of money
5:40is that's the one thing it can really
5:42control and ought to be judged on the
5:45basis of how well it does that one thing
5:54it doesn't have a positive effect on in
5:56our economic life it eliminates a
5:58negative effect fluctuations in the rate
6:01of growth of the quantity of money
6:02produce uncertainty they go up and
6:07prices start to go up and no individual
6:10businessman knows whether the price rise
6:13is because his product is in more demand
6:16and he should reduce it or because
6:18there's more money around and there's
6:20going to be general inflation he will
6:22learn about that he won't learn about
6:24that for months and so let me see if I
6:30can describe it and what I think is a
6:33proper kind of a metaphor consider
6:35listening to the radio the problem that
6:42bothers you is static what matters for
6:46the economy is what happens to relative
6:49prices and relevant demands what you
6:52want is a system under which if people
6:54suddenly decided that they want more
7:00more of one thing unless of another they
7:04want more computers and fewer
7:06automobiles that's reflected in prices
7:09relative price is the price of computers
7:11goes up the price of automobiles goes
7:13down the producers of computers have an
7:15incentive to produce more computers the
7:18producers of automobiles have an
7:19incentive to produce fewer automobiles
7:21that's what the price system is like and
7:23that's what it's for now the effect of
7:26these fluctuations in the quantity of
7:27money is to introduce static into the
7:30signals that are coming out from the
7:32price system it's as if when you listen
7:35to the radio
7:36somebody is deliberately introducing
7:38static into that thinks that you can't
7:40hear anything very clearly and that's
7:43exactly what these fluctuations in the
7:45money supply don't do a stable rate of
7:47monetary growth would not be a positive
7:50good it would simply set a stable
7:53background against which the market
7:55could operate and it would eliminate the
7:58static the uncertainty that these
8:00short-term movements introduce