Full text of White House Central Files (Richard Nixon Library) : Memo, Bill Gibson to Herbert Stein, Correspondence Files: Agencies Files: Federal Reserve System, Box 34

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OPTIONAL FORM NO. 10
MAY 1862 EDITION
O S A F P M R (41 C F R ) 101-11.6

U N ITED STATES G O V ERN M EN T

Memorandum:
TO

: H e r b S tein

FROM

:

SUBJECT:

G tM * S i ^
d a te :

,

3 J a n u ary 1972

B ill G ib so n

A n d r e w B r i m m e r ’ s P a p e r , "E v o lu tio n and Im p a ct o f M o n e t a r is m in the
F e d e r a l R e s e r v e S y s te m

A n d y B r im m e r is a fr ie n d o f m in e , but this p a p e r is n ot a ca n d id a te
f o r the M o n e ta r y E c o n o m ic s H all o f F a m e .
It c o n s is t s o f two p a r t s . The f ir s t is a b o r in g r e c o u n tin g and
in t e r p r e t a t io n o f p a st p u b lis h e d m a t e r ia l, o fte n w ith s o m e r e f e r e n c e to
the t o p ic . T he s e c o n d is a 3 -p a g e s e t o f ’ ’ C o n clu d in g O b s e r v a t io n s 1’ in
w h ich he e s s e n t ia lly sa y s ’ ’W h ile I h a v e y o u h e r e , le t m e t e ll y ou w hat
I think o f m o n e t a r is m . ” T h is w as the s e c t io n r e p r in te d in y e s t e r d a y ’ s
W a sh in g ton P o s t, but it b e a r s on ly the s le n d e r is t r e la t io n to w hat w en t
b e f o r e . T h e p a p e r c h r o n ic le s how m o n e t a r is m has b e e n c o n tin u a lly
r e je c t e d b y the F e d , and the co n c lu d in g m a t e r ia l s ta te s that B r im m e r
r e je c t s it as w e ll. He r e s t a t e s tr a d itio n a l F e d lin e s that the m o n e t a r is t s
a r e u n c o n v in c in g and that fin a n c ia l m a t t e r s a r e v e r y c o m p le x and r e q u ir e
c l o s e m o n it o r in g and r e a c t io n s by p o lic y m a k e r s . A t a m in im u m , one
w o u ld h a v e e x p e c t e d h im to ex p la in p r e c i s e l y w hy he is u n c o n v in c e d by
the e v id e n c e p r o d u c e d by the m o n e t a r is t s and to a d v a n ce s o m e e v id e n c e
o f h is ow n.
I b e lie v e that the f i r s t p a rt is a c o r r e c t r e c o u n tin g o f the e v e n ts ,
and w ith the s ta ff at h is d is p o s a l th e re is no r e a s o n to s u s p e c t o t h e r w is e .
T h e e m p h a s is on the q u e s tio n o f q u a n tific a tio n in the F O M C is , h o w e v e r ,
h ig h ly m is le a d in g . I have r e a d the F O M C m in u te s f r o m 1923 to 1961, and
w h ile the p u b lis h e d d ir e c t iv e s m a y not h ave co n ta in e d any n u m b e r s , the
F O M C c e r t a in ly had n u m b e rs in m in d , and the M a n a g er c e r t a in ly knew
w hat th ese w e r e . T h e 1950s w e r e p e rh a p s the m o s t ’ ’q u a n tifie d ” p e r io d
e v e r . T he FO M C w ou ld te ll the M a n a g e r to p r o d u c e f r e e r e s e r v e s of,
s a y , $250 m illio n , a llo w in g h im to d e v ia te to b e tw e e n $200 and $300
m illio n i f m a r k e t s w e r e d is o r d e r ly . He atten d ed the m e e t in g s and h e a r d
th e s e , e v e n i f they w e r e not in the p u b lis h e d d ir e c t iv e (w h ich is n e a r ly
d e v o id o f c o n te n t).

Buy U.S. Savings Bonds Regularly on the Payroll Savings Plan

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T w o p a r a g r a p h s o f the p a p e r m e r it r e c o u n tin g .
p age 17, d e s c r ib e s the F e d ! s p o lic y p r o c e s s :

T h e f ir s t , fr o m

"In o th e r w o r d s , th rou gh r e s e r v e a b s o r p t io n o r su p p ly in g
o p e r a t io n s in the m a r k e t, the M a n a g e r o f the SO M A a ttem p ts
to b r in g abou t o r m a in ta in a d e s ir a b le s e t o f m o n e y m a r k e t
c o n d itio n s ( e . g . , r a is in g o r lo w e r in g the 3 -m o n th T r e a s u r y
b ill y ie ld o r r a te s on F e d e r a l fu n d s) w ith the e x p e c ta tio n that
the in t e r m e d ia te m o n e t a r y v a r ia b le s ( e . g . , bank c r e d it o r
m o n e y su p p ly ) w ill c o n t r a c t o r exp an d at a ra te c o n s is t e n t
w ith the r e q u ir e m e n t s o f e c o n o m ic s t a b iliz a t io n . F o r e a c h
F O M C m e e t in g , the s ta ff p r e p a r e s an a n a ly s is o f the r e la t io n ­
s h ip s lik e ly to p r e v a il a m on g m o n e y m a r k e t c o n d it io n s , in t e r e s t
r a t e s , and the m o n e t a r y a g g r e g a t e s o v e r a c o m in g p e r io d ,
in d ic a tin g the g row th r a te s in v a r io u s a g g r e g a t e s e x p e c t e d to
be a s s o c ia t e d w ith e a c h o f s e v e r a l d e s c r ib e d k in d s o f m o n e y
m a r k e t c o n d it io n s . M
T h e s e c o n d , f r o m p a ge 65, g iv e s the f la v o r o f B r i m m e r ’ s o b je c t iv e
a n a ly s is o f the d e v e lo p m e n t o f m o n e t a r is m at the F e d .




"B u t taking the F e d e r a l R e s e r v e B anks as th ey a r e tod ay, I
w ou ld c o n c lu d e that a ll o f them (w ith the e x c e p t io n o f St. L o u is )
r e m a in h ig h ly e c l e c t i c and p r a g m a t ic in th e ir c o n c e p tio n o f
the ta sk s o f m o n e t a r y m a n a g e m e n t. T h e y a p p r e c ia t e fu lly the
d iffic u lt p r o b le m s o f u sin g m o n e t a r y p o lic y as an in s tru m e n t
o f e c o n o m ic s ta b iliz a t io n , and sh ow no s ig n s o f b e in g le d a s t r a y
b y s im p le p r e s c r ip t io n s as to how th ey sh ou ld p e r f o r m th ese
jobs.n