Milton Friedman in 1948

"Explicit control of the quantity of money by government and explicit creation of money to meet actual government deficits may establish a climate favorable to irresponsible government action and to inflation."

From:

'A Monetary and Fiscal Framework for Economic Stability'

The American Economic Review, Vol xxxviii, June, 1948

Prof. Friedman wrote these words as a qualification to his larger argument that the government could manage stable growth over time through careful control of the money supply. In other words, the quote above represents two potential negative consequences that he could imagine resulting from the monetarist framework he was proposing and otherwise supported.

The truth is, he might have been right about his support for monetarism -- and about his two qualifications. The quantity of the money supply has steadily expanded since the 1970s, and GDP growth has basically stabilized, just like he argued would happen.

But the questions Prof. Friedman raises are still relevant: how long can the dollar absorb constant supply-side expansion? The assumption should be at some point the pressures on the dollar have to be relieved or the dollars will pop. Right? And what kind of governance would it take to be pragmatic about the limits of supply-side economics?

In the near future, US economic imbalances might lead policymakers to take those two qualifications of Prof. Friedman's as seriously as they have long taken his overall monetarism.