Money and Monetary Policy for the Twenty-First Century

This essay challenges the conventional wisdom about money and monetary policy. The role of money in fostering prosperity is a function of the quality, as well as the quantity, of money. Inflation always harms the performance of an economy. Deflations caused by productivity and innovation can be virtuous. A definition of a non-inflationary environment is set forth. Rapid real growth and low unemployment cannot cause inflation. There is no trade-off between inflation and employment. Higher commodity prices or 'weak' exchange rates cannot cause inflation. High market interest rates are a symptom of inflationary policies. Low interest rates are a reflection of successful anti-inflationary policies, not 'easy money.' Reprinted by permission of the Federal Reserve Bank of St. Louis