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Milton Friedman's opinions have particular weight now because the Nixon Administration has placed great reliance on the policies that he prescribes to deal with the current inflation. Friedman was one of Richard Nixon's chief economic advisers during the election campaign. He did not seek a full-time job in Washington because "I like to be an independent operator," but his ideas are highly regarded within the Administration. "Milton Friedman has influenced my thinking," says Paul McCracken, chairman of Nixon's Council of Economic Advisers, who describes himself as "Friedmanesque." The two men often talk on the telephone, chat privately at the many conventions that economists attend. McCracken has been monetarist-minded for years, and since he took office the council has begun running computer calculations about the future course of the U.S. economy based on monetary indicators. Friedman has even closer relations with Arthur Burns, Nixon's choice to succeed William McChesney Martin next month as chairman of the Federal Reserve Board. Friedman studied under Burns at Rutgers, and they have often spent evenings in animated discussion at Ely, Vt. where both own country homes.
In Friedman's monetarist view of economics, the chief instrument for controlling movements of the economy is the seven-man Federal Reserve Board. For months, the board has been following a tight-money policy of unusual severity. A year ago, it began to hold back the growth of the money supply; since midyear, it has permitted no growth at all. Ironically, Friedman's principal complaint is that the Federal Reserve is overdoing the restraints in its effort to cure inflation. "If the board continues to keep the growth of money at zero for another two months, I find it hard to see how we can avoid a severe recession," he says. "The board has made the same mistake that it has made all along. It is going too far in the right direction."
Because money is so potent, he contends that the board should allow the supply to expand at a fairly constant rate of about 5% a year, in line with the long-term growth rate of the nation's production of goods and services. Last week the Federal Reserve issued some statistics that led even a few experts to conclude prematurely that it had begun to ease its tight-money policy. In reality, the board has done no such thing. It has merely followed its usual policy of permitting a slight seasonal rise to accommodate businessmen's heavy pre-Christmas buying patterns.
Split in the Board
The board is split by a rare public debate over whether, when and by how much to expand the money supply. Last week Vice Chairman James L. Robertson called for "tighter and more painful controls" to eradicate the nation's "inflation psychosis." Such tough talk reflects a serious worry that is still shared by the majority of the board's members. They fear that even the slightest move toward easier money or lower interest rates would be misinterpreted by businessmen as a signal to get set for another jolt of inflation. In the minority at present, Board Members Sherman
Maisel and George W. Mitchell, both economists, side with Friedman in contending that the Federal Reserve has kept money scarce for so long