The title to this essay is taken from one of Friedman’s major works in Economics, A Monetary History of the United States which contains all of the theory and practice of monetary economics, which he had mastered. Since government is always the supreme authority of a nation’s money, then it is the government that is responsible upon all occasions for misgivings in its management, which may include inflation, deflation, recession, and we hope its salutary management in good times. In the United States, the Constitution assigns to Congress the power “To coin money, regulate the value thereof, and of foreign coin, and fix Standards of Weights and Measures.”
By convention, money is valued at whatever amount a sovereign government says it is; in the United States it is stamped on coins and printed on currency denominated in dollars. Thereby, it is legal tender to repay debts denominated in United States dollars and likewise in money transactions in the United States. The word “money” is construed in the United States as including currency and coins minted the government, plus the values contained in bank accounts, credit card and debit card balances United States dollars.
Money in the United States is regulated by the Federal Reserve System together with the Department of the Treasury in maintaining inflation (and deflation) within reasonable limits of the money supply. It is the opinion of most economists that the greatest degree of success enjoyed by Federal Reserve and Treasury Department actions is by following the procedures set forth by Milton Friedman in A Monetary History of the United States (1963). The Friedman approach is to maintain equilibrium within a plus and minus band in relation to the economy’s needs. Economic shocks may occasion changes of the status quo in order to manage the money supply back within the desired range. As they say, the proof is in the pudding.
Since May, 2020 the Twelve-month percentage change in The Consumer Price Index (not seasonally adjusted) rose from a starting point in May, 2020 of 0.3% percent to May, 2022 ending at 8.6% (the last published posting). Congress, charged with the fiduciary trust to manage the value of U.S. money spent nearly all its deliberation to obtain a series of spending plans that reached fruition at $5,000,000,000,000. This occurred within the period January through May, 2020. The President claimed, against all reasonable advice that this spending would be without inflation. Unknown at the time of passage was that the government was going to need to spend several hundreds of billions of dollars for defense by Ukraine against a Russian invasion.
The first significant move against inflation occurred this week with the Federal Reserve raising bank interest rates 0.75%. It is going to take more of those to achieve success against inflation in order to make up for the politically scarred delay that would have been on the heels of the gigantic spending.
This is what terrible government management looks like!