Tape 82 - International Monetary Development, Domestic Economy

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Rose Freedman	Hello. This is Rose Freedman	0:02
	inviting you on behalf of Instructional Dynamics	0:04
	to another of our biweekly interviews	0:07
	with Dr. Milton Freedman, professor of economics	0:09
	at the University of Chicago.	0:12
	We are taping this interview	0:14
	on Monday, September 27th, 1971.	0:15
	Our apologies for the long interval since the last tape,	0:20
	but we have been in Europe for a couple of weeks	0:23
	and immediately upon our return	0:26
	Mr. Freedman went to Washington for a few days	0:28
	to testify before the joint economic committee	0:30
	and to attend some meetings on the	0:33
	international monetary developments.	0:35
	How do you interpret these developments?	0:38
Dr. Freedman	Well it's clear in the weeks	0:40
	that have passed since the President's bombshell	0:42
	on August 15th that in the international monetary area	0:46
	we have a wholly new ballgame.	0:51
	The Bretton Woods System is clearly dead.	0:53
	That system, established at the end of the war	0:57
	was intended by its main authors,	1:00
	John Maynard Keynes of England	1:04
	and Harry White of the United States,	1:05
	to be a system which would combine	1:08
	moderate flexibility of exchange rates	1:10
	with reasonable stability	1:13
	in the average exchange rate over a period	1:16
	and avoidance of competitive depreciation,	1:19
	beggar my neighbor policies,	1:23
	of the kind that plagued the 30s.	1:25
	But as it worked out,	1:27
	it worked out very differently	1:28
	than either Keynes or White intended.	1:30
	The provisions for relatively flexible exchange rates	1:33
	were forgotten.	1:36
	It turned into a system	1:37
	which encouraged extreme rigidity of exchange rates	1:39
	which permitted problems to build up	1:42
	under the cover of the fixed exchange rates,	1:45
	and then to explode into an international monetary crisis.	1:47
	The two-tier system in early 1968	1:51
	was really the end of that system.	1:56
	It substituted a dollar standard in the world	2:00
	for the gold exchange standard	2:03
	which had been prevailing before that.	2:04
	But the final blow,	2:07
	the final official burying of the Bretton Woods system	2:09
	was Mr. Nixon's cutting of the link	2:14
	between the dollar and gold	2:16
	and his assertion that the US would no longer	2:19
	convert dollars into gold.	2:21
	Though this did not change,	2:24
	as I indicated in my earlier tape,	2:26
	anything fundamentally	2:28
	in the mechanical structure of the system.	2:30
	It had enormous symbolic effect.	2:33
	Combined with a 10% surcharge,	2:35
	its impact was very far reaching.	2:38
	In the course of our trip in Europe,	2:42
	I talked to many newspaper correspondents	2:44
	and government officials.	2:46
	None of them had the slightest interest	2:48
	in what was going on domestically in the United States.	2:50
	They asked no questions about the price and wage freeze	2:53
	or about the tax and expenditure measures.	2:56
	Their questions were entirely	2:59
	about the international monetary situation.	3:01
	Over and over again I was asked about the import surcharge,	3:04
	whether it would continue or would be eliminated,	3:09
	whether it was the first step	3:13
	in a new protectionist trade war,	3:14
	whether the US would raise the official price of gold,	3:17
	and a subject that people here may not have much interest in	3:20
	but that was overwhelmingly important to them:	3:24
	whether I thought there was much chance	3:27
	that the common market would be able	3:30
	to provide a unified currency	3:31
	that would offer a substitute for the dollar.	3:34
	I may say on that last item	3:37
	that my own belief is that that is almost impossible.	3:39
	That a common unified currency is a final step	3:42
	that will be attained	3:48
	only if Europe can achieve political unity.	3:50
	The Europeans have tried to make a unified currency	3:55
	a step toward political unification.	3:58
	I do not believe it can be.	4:00
	I think you have three different things:	4:01
	Economic unification which means freedom of trade	4:03
	of men, goods, and capital;	4:06
	monetary unification which means a single unified currency;	4:08
	and political unification	4:13
	which means a central ultimate political authority.	4:15
	In my opinion, you can have economic unification	4:19
	without the other two,	4:22
	but you cannot have monetary unification	4:24
	without first having political unification.	4:27
	And I believe this has been revealed dramatically	4:29
	in the past few years by the perpetual crises	4:32
	between the mark and the franc.	4:35
	To turn back to the general international situation,	4:38
	if the Bretton Woods System is dead,	4:42
	what will follow it?	4:44
	The key to the Bretton Woods System	4:47
	was the convertibility of the dollar into gold.	4:50
	The reason this was the key	4:53
	is because of the so-called N country proposition.	4:55
	The fact is that if there are N countries,	5:00
	there are only N-1 exchange rates.	5:03
	If there are ten countries,	5:05
	there are only nine exchange rates	5:07
	and some country must be the odd man out.	5:08
	Some country must be in a position	5:11
	where it cannot and does not have any control	5:13
	over its exchange rates.	5:16
	The US has been that country in the past	5:18
	on the grounds that it adopted a different obligation	5:21
	namely to convert its currency into gold.	5:24
	So you'll have the US converting dollars into gold	5:28
	at a fixed price.	5:31
	You had all the other countries	5:32
	expressing their exchange rates in terms of the dollar	5:33
	and varying it from time to time	5:36
	or trying to peg it within narrow limits.	5:38
	The N country problem still remains.	5:44
	It's still true that not all countries	5:46
	can determine independently their exchange rates.	5:49
	In the new system, I believe that will be resolved	5:52
	by the dollar remaining the N'ed country,	5:56
	the odd man out.	5:59
	But it will now be in the form of a dollar standard	6:01
	without any commitment on our part	6:04
	to convert into gold or into anything else.	6:06
	There is much talk among the central bankers	6:09
	of still other systems.	6:12
	They think that Humpty Dumpty	6:14
	can be put back together again.	6:15
	The breakdown of the Bretton Woods System,	6:18
	the reduction in the role of the international monetary fund	6:20
	is not something which is very pleasant or attractive	6:24
	even to foreign central bankers	6:27
	or to the officials of the IMF.	6:28
	So there's much talk	6:31
	about establishing a new kind of a system	6:33
	in which gold is replaced	6:35
	by an artificial internationally created asset,	6:41
	reserve asset like the present SDR,	6:45
	Special Drawing Rights	6:48
	which were created a few years ago.	6:50
	In my opinion, none of these schemes will come to anything.	6:53
	I do not believe that international monies can be created.	6:58
	I believe they have to develop	7:03
	out of the economic realities.	7:05
	I don't particularly like the idea	7:07
	that the dollar is going to be the international currency.	7:09
	It would be a lot easier for us	7:12
	if the dollar were symmetrical to other currencies.	7:14
	I think the gains are small relative to the costs.	7:17
	But I don't believe we have any choice.	7:22
	The dollar is the international currency.	7:24
	It is the currency most widely used	7:27
	as a vehicle currency in international trade.	7:29
	It is the currency that is used by central banks	7:33
	when they intervene in the market	7:35
	to try to peg its exchange rates of their currencies.	7:39
	It is the currency in terms of which	7:42
	all other exchange rates are expressed.	7:44
	It is the currency which is most widely held	7:46
	as a reserve by individuals	7:48
	and governments engaged in international trade.	7:50
	So as I see it the new system like the old	7:53
	will have the dollar the odd man out	7:57
	which cannot change its exchange rate	7:59
	and in terms of which other countries	8:01
	express their exchange rates.	8:03
	What then will be the difference in the new system?	8:05
	The main difference as I see it will be	8:08
	that the exchange rates between different currencies	8:12
	will be much less rigidly fixed than they were earlier.	8:17
	Personally, I would like to see,	8:20
	as I have favored for many many years,	8:23
	A system of completely flexible exchange rates.	8:26
	But I don't believe you will have that.	8:29
	Although the confusion between rigidity of exchange rates	8:32
	and stability of exchange rates	8:37
	has largely been shattered	8:39
	by the monetary crises of the past few years,	8:41
	it remains strong enough	8:44
	so that almost every country in the world	8:46
	is going to try to intervene to peg its exchange rates.	8:48
	Therefore my own expectation is	8:53
	that fixed exchange rates will be reestablished	8:55
	though perhaps with wider margins around them	8:57
	within which they may vary.	9:01
	Instead of being plus and minus 1% of the parody,	9:02
	they may be plus and minus 3% or 5%.	9:05
	However, countries will no longer stick	9:09
	to those exchange rates as rigidly as they have in the past.	9:12
	It would have been inconceivable, even a few years ago,	9:17
	that four major currencies of the world,	9:20
	the mark, the yen, the dutch guilder,	9:22
	and the Canadian dollar would be floating at the same time.	9:25
	But this will be more frequent in the future.	9:28
	Just consider what happened	9:31
	to both the German mark and the Japanese yen.	9:32
	In both cases, in order to postpone	9:36
	the floating of those currencies by something like two weeks	9:40
	the central banks in question	9:44
	bought tremendous amounts of dollars.	9:46
	In the German case,	9:48
	something like six to eight billion dollars.	9:49
	They bought those at a high price in German marks	9:53
	compared to the price at which they could sell them.	9:57
	It cost Germany roughly something like 500 million dollars	10:00
	in order to postpone the floating of the German mark	10:04
	by two weeks.	10:07
	The Japanese had exactly the same experience.	10:09
	It cost them also something like 500 million dollars	10:12
	to postpone floating it for two weeks.	10:16
	I find it inconceivable that in the future	10:19
	any central bank anywhere	10:22
	is going to pay that large a price for that small a gain.	10:24
	The German government may very well	10:29
	repeg the mark at a new fixed rate.	10:32
	If so, it will sooner or later again come into crisis.	10:35
	And when it does, I believe it will be permitted	10:38
	to float at a transitional nature to a new parody	10:41
	in two days instead of two weeks,	10:45
	or maybe in two hours instead of two days.	10:47
	So I think the characteristic feature	10:50
	of the system in which we are emerging	10:51
	is that while at any moment in time,	10:54
	most exchange rates will be fixed,	10:56
	There will also be some which will be floating	10:59
	and the ones that will be floating	11:02
	will be different at one time than they are at another.	11:04
	That's not the ideal system,	11:11
	but it seems to me a very much better system	11:13
	than the system which we have had	11:15
	in which the fixity of parody	11:18
	became almost an object of religious veneration	11:20
	in which it became sacrilege	11:23
	to consider the possibility of changing it.	11:26
Rose Freedman	What about the price of gold?	11:29
Dr. Freedman	Well now, the price of gold at the moment,	11:33
	it has to be distinguished between	11:37
	the price of gold in London	11:38
	where there's a free market for gold	11:39
	and the official price of gold,	11:41
	the so-called second tier,	11:43
	the official price of $35 and ounce.	11:44
	So long as the US does not buy and sell gold,	11:48
	as the gold window is closed,	11:52
	that official price of gold is meaningless	11:54
	from the US point of view.	11:58
	It makes no difference whatsoever	12:00
	if we don't sell gold at $35 an ounce	12:02
	or if we don't sell gold at $38 an ounce.	12:05
Rose Freedman	Well we might change and sell it again	12:09
	or buy it again in the future.	12:11
	And then the price would matter.	12:13
Dr. Freedman	Yes, that's why I said	12:15
	so long as the window is closed.	12:17
	And I believe the window will stay closed.	12:20
	It may not, but I'm going to proceed on the assumption	12:23
	that the window will stay closed	12:26
	and so long as that's so,	12:28
	it doesn't matter what the price is.	12:30
	And yet the fascinating thing	12:33
	is that the European countries very badly want us	12:35
	as part of the agreement to raise the price of gold.	12:39
	And the question comes up,	12:43
	why should they be insisting on	12:45
	our raising the price of gold?	12:46
	What really matters are exchange rates.	12:48
	the purpose of Mr. Nixon's moves	12:51
	is to get the European countries,	12:54
	and Japan in particular,	12:56
	to change their exchange rates.	12:58
	And from this point of view,	13:00
	it has already been tremendously successful.	13:01
	The Japanese yen is floating.	13:04
	It has appreciated by something like 5 to 8%.	13:06
	The German mark has been floating.	13:12
	It has appreciated as much as 10%.	13:14
	The British pound sterling	13:18
	has appreciated a few percentage points.	13:21
	Clearly, we have made a real breakthrough	13:24
	in getting changes in exchange rates.	13:28
	Sofar as the changes in exchange rates are concerned,	13:32
	They can take place at any particular price of gold.	13:35
	So the question comes back,	13:40
	why should the European countries be so insistent	13:41
	on our changing the price of gold?	13:46
	One argument which is sometimes given	13:50
	is that it would simplify the matter	13:53
	of getting a readjustment of exchange rates.	13:56
	The argument goes as follows:	13:59
	if the US raised the price of gold by 10% say,	14:01
	if other countries left	14:07
	their official prices of gold unchanged,	14:09
	the effect would be to change all exchange rates,	14:12
	vis a vis the dollar by 10% to appreciate them all	14:15
	but to leave them the same compared to one another.	14:20
	Of course, this same result could be obtained	14:24
	by no changes in the US price of gold	14:27
	but simply having all other countries	14:31
	appreciate their currency by 10%.	14:34
	However the argument is that it is easier	14:37
	to have the US move alone	14:40
	than to require all countries to do so.	14:43
	This argument has a good deal of appeal at first glance,	14:46
	but I think it dissolves if you examine more deeply.	14:49
	The fact is that other countries have not really been	14:54
	buying and selling gold at fixed prices.	14:58
	The way they have been fixing exchange rates	15:01
	is by buying and selling prices for their currencies	15:05
	in terms of dollars.	15:09
	Even if the US were to raise the price of gold by 10%	15:12
	it would take explicit action on the part of	15:17
	each other country separately in order for them	15:19
	to change their announced buying and selling prices	15:23
	for the dollar by 10%.	15:25
	So our raising the price of gold	15:28
	would not in any way eliminate the necessity	15:30
	for each country separately to do something.	15:33
	And each country separately would be free not to do so	15:36
	so there would be no guarantee that all currencies	15:39
	would move the same vis a vis the dollar.	15:41
	And indeed nobody wants all currencies to move the same	15:43
	vis a vis the dollar.	15:46
	The basic reason why I think other countries	15:49
	want us to change is very different.	15:51
	Why they want us to change the price of gold	15:53
	is very different.	15:55
	It's for window dressing.	15:56
	Here is Gistard d'Estaing, the French finance minister.	15:59
	I heard him quoted	16:05
	by one of the foreign central bank officials	16:07
	at the meeting I was at as follows.	16:09
	He said, Sometime back,	16:12
	France had balance of payment problems.	16:15
	We had a balance of payments deficit.	16:18
	We had to go hat in hand to the IMF	16:20
	and ask them for permission for us to devalue our currency,	16:23
	that is to raise the price of gold in terms of francs,	16:27
	and in this way to raise the exchange rates	16:31
	between the franc, the dollar, and all other currencies.	16:34
	Now, says Giscard, the Americans are in trouble.	16:37
	They have a balance of payments and what do they want?	16:40
	They want us, the French, once agsain to go to the IMF	16:43
	and ask for a change in the price of gold,	16:49
	this time a reduction in the franc price of gold	16:52
	in order that we might appreciate our exchange rate.	16:54
	So it would make Giscard feel better,	16:58
	it would make many people in France feel better,	17:01
	to have the symbol, the act, of the US saying mea culpa.	17:05
	We have been bad boys,	17:14
	we have had a balance of payments deficit.	17:15
	We are going to go through the symbolic act	17:18
	of raising the gold price	17:20
	or of asking the IMF for permission to raise the gold price	17:22
	in order to announce before the world	17:26
	that we have behaved badly.	17:29
	This is part of it.	17:34
	It's part of it for just this pure pleasure	17:35
	but there are two other political elements entering in	17:37
	I believe.	17:41
	One political element is that	17:42
	the politicians and the public at large	17:44
	don't understand the intricacies of high finance.	17:47
	If we keep the price of gold unchanged	17:51
	and continue along the lines I've indicated	17:55
	the effect of it is that when a French central banker	17:58
	or a German central banker stands before his parliament	18:01
	and is asked whether his currency is on the dollar standard,	18:05
	whether it's a tail to the American kite,	18:10
	he will have to say yes.	18:13
	On the other hand, if we make this symbolic act	18:15
	of changing the price of gold,	18:19
	he believes, rightly or wrongly,	18:20
	that he can stand up in front of his parliament	18:23
	and say well yes, we're partly on a dollar standard,	18:26
	but you know we're also on a gold standard.	18:28
	The United States has admitted that there's a link to gold	18:30
	by changing the price.	18:33
	But I think there's a much more fundamental factor involved	18:35
	in their attitudes in that.	18:38
	By our accepting the obligation in the past	18:42
	to convert dollars into gold,	18:45
	we have given great political power	18:46
	to France, to Germany, and to other countries	18:50
	because they have been in a position	18:53
	to cause troubles for us and to make us uncomfortable.	18:55
	And they are very reluctant to give up that political power.	18:59
	They would like to retain it.	19:02
	And I believe that fundamentally what's involved	19:04
	is that they believe that so long as we have acknowledged	19:07
	that there is somehow some kind of a symbolic link	19:11
	between the dollar and gold,	19:15
	that then at some future time,	19:17
	they may be able to reestablish a system	19:19
	which will enable them to have considerable power over us.	19:21
	Now it would cost the US absolutely nothing	19:25
	in any technical sense	19:28
	to go through the charade of raising the price of gold	19:30
	so long as we kept the gold window closed.	19:33
	We can make other countries happy at very little cost to us.	19:37
	So I must say it is very tempting to do so	19:43
	as a way of promoting political unity and harmony,	19:49
	as a way of getting an adjustment of exchange rates	19:53
	at least cost.	19:55
	And yet personally, I remain strongly opposed	19:57
	to making this gesture.	20:00
	I do so not because I object in any way	20:03
	to our making the meaningless statements that we are guilty.	20:06
	We are in part guilty.	20:09
	We have been following inflationary policies	20:10
	and that has played a role in the balance of payment problem	20:12
	though I think a very minor role.	20:15
	My reason for objecting is very different.	20:17
	I think if we don't face up to it right now	20:19
	we're going to have to face up to it later on.	20:22
	And it seems to me far healthier	20:24
	for all of us to face up to the real problem now	20:27
	rather than to confuse the issue	20:30
	by arithmetic conjuring tricks	20:33
	designed only to save face.	20:35
	Now that's my view.	20:37
	The question is what will happen.	20:38
	Both President Nixon and Mr. Connally	20:41
	have indicated that they are extremely opposed	20:44
	to raising the price of gold.	20:46
	However that may very well change.	20:48
	One of the main reason for their opposition	20:50
	has been that this particular measure	20:52
	requires congressional action	20:54
	and they have been under the impression	20:56
	that there would be a great deal	20:59
	of opposition in the Congress.	21:00
	However some of the leading figures in the Congress,	21:01
	Henry Royce in the House,	21:04
	William Proxmire in the Senate	21:06
	have come out in favor of a rise in the price of gold	21:07
	of this bookkeeping kind.	21:10
	And I would not want to put very heavy bets	21:12
	at very heavy odds	21:16
	that before the whole business is over	21:17
	we will not have made a gesture in this direction.	21:19
Rose Freedman	What about the import surcharge?	21:22
Dr. Freedman	Well, the import surcharge	21:25
	is a more serious matter.	21:28
	I believe it would be very dangerous for us,	21:32
	very adverse to our longterm interests	21:34
	to keep it for very long.	21:36
	The protection of sentiments in this country	21:38
	are potentially very strong	21:40
	and they will rise to the surface.	21:43
	Moreover, it's not even clear	21:46
	what the political considerations are.	21:49
	True, the import surcharge is very popular	21:51
	with respect of the industries that are protected.	21:56
	The steel industry, the auto industry, and so on.	21:59
	However, if you compare an import surcharge	22:02
	with a revaluation, the revaluation will	22:04
	stimulate exports as well as discourage imports.	22:10
	And I can well believe that political objection	22:14
	to the import surcharge will start arising	22:17
	from our export industries.	22:19
	The agriculture industry in particular	22:22
	is a very big export industry.	22:26
	There are already signs on the part of other countries	22:29
	that they may retaliate against the import surcharge	22:32
	by restrictions of their own.	22:35
	And if they do that, that will still	22:37
	further hurt the prospects for exports.	22:40
	So I think we have a great national interest	22:43
	in getting rid of the import surcharge.	22:45
	In return, for a realistic reevaluation of other currencies	22:47
	as well as some reduction in non-tariff barriers	22:53
	by other countries.	22:57
	The question is whether that will happen.	22:58
	And here I really have no very strong feelings.	23:02
	I do believe that unless some deal is made	23:07
	in the next month or so,	23:10
	the import surcharge is likely	23:11
	to be with us for a very long time.	23:13
	I am not of the group who are inclined	23:16
	to criticize Mr. Connally for his handling	23:19
	of the group of ten in London	23:22
	and for his taking an adamant position.	23:25
	On the contrary the fact that	23:26
	they are yelling and screaming as much as they are	23:29
	shows that it's biding,	23:30
	shows that we have a tool that has some effect.	23:32
	They are unaccustomed to our standing up for our interests	23:35
	and putting out interests ahead of theirs,	23:38
	and I think it's excellent bargaining tactics to stand firm.	23:40
	But I do have that Mr. Connally and Mr. Nixon	23:45
	will be able to work out a deal with the other countries	23:48
	which will get rid of the import surcharge very soon,	23:50
	though I would not put the odds of much better than 50/50.	23:54
Rose Freedman	Turning to domestic matters,	23:58
	it is now six weeks since the President's bombshell.	24:00
	What further thoughts do you have on that?	24:03
Dr. Freedman	So far there is very little sign	24:08
	of any significant change in the economic picture.	24:10
	There certainly is no sign of	24:13
	any speeding up of the expansion that was underway before.	24:15
	Parts of the President's program	24:19
	other than the price and wage freeze	24:21
	have of course not come into effect.	24:23
	Congress is working on them	24:25
	and nothing has happened with respect to them.	24:27
	My own thoughts on this issue have run rather	24:30
	to speculations about the longer run consequences	24:34
	of the policies followed.	24:38
	The scenario that frightens me	24:40
	is the possibility that undercover of the wage price freeze	24:42
	and of whatever wage price review board follows it,	24:47
	the price index numbers will look good,	24:51
	but undercover of it, there will be great pressure	24:54
	to take expansionary action	24:56
	in both the fiscal and the monetary area.	25:01
	After all, everybody will say	25:04
	the wage price review boards are taking care of inflation.	25:06
	Why do we have to worry about it?	25:09
	Now we can really go out for expansion.	25:11
	That currently is already happening on the fiscal side	25:14
	and I think it's easy to see	25:17
	that you are going to have a very large deficit	25:20
	and the deficit is not going to be restrained substantially	25:22
	by either Congress or the President.	25:25
	Certainly more by the President than by Congress,	25:28
	but probably by neither.	25:30
	If in addition, you also had a very rapid monetary expansion	25:33
	the end result would be that	25:38
	you want to put a weight on the lid	25:40
	to keep it from blowing off	25:43
	but you woud;ve turned up the heat under the kettle	25:44
	and have built up an irresistible pressure.	25:47
	Let's suppose that lasts through '72	25:50
	and in early 1973 or mid 1973,	25:52
	the whole thing collapses.	25:55
	At that point you would start having a very rapid inflation	25:57
	and the question would be, what then.	26:00
	As I can see, there are only two alternatives at that time.	26:03
	Either you would have a very much more far reaching	26:06
	wage and price controls	26:11
	or else you would have enormous pressure	26:12
	to step very hard on the break	26:14
	to produce another recession,	26:16
	this time more severe than in '70.	26:18
	We would've thrown away what we gained	26:21
	from the '70 recession	26:23
	and we would have to face up to a repetition of it.	26:24
	I can see only one way of avoiding that outcome.	26:27
	And that is if the Federal Reserve	26:30
	does maintain a moderate rate of monetary expansion	26:32
	between now and then.	26:38
	They are I believe our only hope.	26:39
	Congress will not provide any restraint.	26:42
	If there is to be any restraint between now and then	26:45
	so that we have even a faint chance	26:48
	of getting rid of the wage and price controls	26:50
	without a renewal of inflation	26:52
	it will have to come from the Fed.	26:54
Rose Freedman	Hasn't monetary growth slowed down?	26:56
Dr. Freedman	Yes, monetary growth has slowed down	27:00
	in the past couple of months.	27:02
	Indeed for the last two months it has been roughly zero.	27:04
	However I am uncertain what that pertains for the future.	27:08
	The slowdown was associated with a sharp decline	27:13
	in short term interest rates	27:17
	arising partly out of the psychological reaction	27:19
	to the President's talk,	27:22
	partly out of the investment of dollars in this country	27:24
	by foreign central banks.	27:28
	Now in the past, what we have observed	27:30
	is that whenever outside forces	27:33
	have been tending to raise interest rates,	27:37
	forces other than monetary policy itself,	27:39
	the Fed, because it pays attention to interest rates	27:42
	and tends to lean against them, produces a more rapid rise	27:45
	in the quantity of money than it intends.	27:49
	That's what happened in the first half of this year.	27:52
	On the other hand, whenever outside forces	27:56
	are tending to lower interest rates	27:58
	as happened in the fourth quarter of last year	28:01
	during the GM strike,	28:04
	or has happened in the last couple of months,	28:06
	then the Fed produces a smaller rise	28:08
	in the quantity of money than it intends.	28:10
	So I am not sure that this recent episode	28:13
	is really a sign that the Fed will and is determined	28:16
	to keep monetary growth rates moderate	28:20
	rather than another example	28:24
	of its leaning against the interest rates.	28:25
	If it is the latter, and if it is as I expect,	28:28
	interest rates will resume their upward trend	28:31
	in the next few months,	28:34
	then we may look forward to a resumption	28:35
	of rapid monetary growth.	28:38
Rose Freedman	I'm afraid we've run out of time.	28:40
	Thank you very much.	28:42
	Remember subscribers, if you have any questions or comments	28:44
	for topics you would like to hear discussed in this series,	28:47
	please send them to Instructional Dynamics Incorporated	28:50
	166 East Superior street, Chicago, IL 60611.	28:53
	We will be visiting with you again in two weeks.	28:59

Item Info

Title:

Tape 82 - International Monetary Development, Domestic Economy

Date:

September 27, 1971

Contributor:

Friedman, Milton, 1912-2006

Subject:

Format:

audiocassettes

Language:

English

Digital Collection:

Paul A. Samuelson papers, 1933-2010 and undated

Source Collection:

Paul A. Samuelson papers, 1933-2010

Series:

Economics Cassette Series: Milton Friedman

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RL10082-CS-0272
ref2684_dda
samuelsonpaul
duke:325294
pstau001271
ark:/87924/r4n58d301
27efe3b5-6eed-4a2c-b43f-6a7a88394f91

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Tape 82 - International Monetary Development, Domestic Economy

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