Friedman’s Monetary Framework: Some Lessons
Ben S. Bernanke

It is an honor and a pleasure to have this opportunity, on the anniversary of Milton and Rose Friedman’s popular classic, Free to Choose, to speak on Milton Friedman’s monetary framework and his contributions to the theory and practice of monetary policy.

About a year ago, I also had the honor, at a conference at the University of Chicago in honor of Milton’s ninetieth birthday, to discuss the contribution of Friedman’s classic 1963 work with Anna Schwartz, A Monetary History of the United States.

I mention this earlier talk not only to indicate that I am ready and willing to praise Friedman’s contributions wherever and whenever anyone will give me a venue but also because of the critical influence of A Monetary History on both Friedman’s own thought and on the views of a generation of monetary policymakers.

In their Monetary History, Friedman and Schwartz reviewed nearly a century of American monetary experience in painstaking detail, providing an historical analysis that demonstrated the importance of monetary forces in the economy far more convincingly than any purely theoretical or even econometric analysis could ever do.

Friedman’s close attention to the lessons of history for economic policy is an aspect of his approach to economics that I greatly admire. Milton has never been a big fan of government licensing of professionals, but maybe he would make an exception in the case of monetary policymakers.

With an appropriately designed licensing examination, focused heavily on the fine details of the Monetary History, perhaps we could ensure that policymakers had at least some of the appreciation of the lessons of history that always informed Milton Friedman’s views on monetary policy.

Today I will pass over Friedman’s contributions to our knowledge of monetary history and focus instead on how his ideas have influenced our understanding both of how monetary policy works and how it should be used. ...

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In summary, one can hardly overstate the influence of Friedman’s monetary framework on contemporary monetary theory and practice. He identified the key empirical facts and he provided us with broad policy recommendations, notably the emphasis on nominal stability, that have served us well. For these contributions, both policymakers and the public owe Milton Friedman an enormous debt.

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