When I think of Milton Friedman, I often think first of — oddly enough — his essay on a commodity reserve currency. This not-quite-famous piece of 1951 does not bear on current policy debates, and it did not much influence the world. The idea of backing a money with a commodity bundle wasn’t going to happen anyway.
But it shows one of the sides of Milton I most admire, namely his razor-sharp logic and his ability to get to the core of an idea and pick it apart. It is a model of understanding and argumentation. I read this piece and quake with fear that I might someday disagree with Milton and be disassembled in a quick debate, if the word debate could even be said to apply.
Milton’s critics sometimes portray him as a monetary dogmatist, but this was never the case. The early Milton favored one hundred percent reserve banking, in part as a reaction against the bank failures and excesses of the Great Depression. I read the commodity basket piece as breaking his ties to the commodity money idea, an old (and perhaps outdated?) piece of classical liberal thought.
The mid-period Milton favored a fixed rate of monetary growth. The Milton Friedman of 1969 considered the idea of deflation — an "optimum quantity of money" — although it is not clear he ever endorsed that proposal. The Milton Friedman of 1986 Friedman and Schwartz toyed with ideas of free banking. The very late period Milton Friedman was moving toward the notion of an inflation rule, as monetary targeting had not worked.
Milton was always on a quest toward a greater truth. If an argument ran against him — and usually it didn’t — he would submit and pick up the pieces in a purely forward-looking manner.
I think often of Milton’s essay on commodity reserve currency.