Milton Friedman’s one of the most famous and widely read papers is – The Role of Monetray Policy , American Economic Review, March 1967. Each time you read it, you learn something new.
In the paper, he quotes John Stuart Mill (page 12):
My own studies of monetary history have made me extremely sympathetic to the oft-quoted, much reviled, and as widely misunderstood, comment by John Stuart Mill.
“There cannot . .. ,” he wrote, “be intrinsically a more insignificant thing, in the economy of society, than money; except in the character of a contrivance for sparing time and labour. It is a machine for doing quickly and commodiously, what would be done, though less quickly and commodiously, without it: and like many other kinds of machinery, it only exerts a distinct and independent influence of its own when it gets out of order” [7, p. 488].
True, money is only a machine, but it is an extraordinarily efficient machine. Without it, we could not have begun to attain the astounding growth in output and level of living we have experienced in the past two centuries-any more than we could have done so without those other marvelous machines that dot our countryside and enable us, for the most part, simply to do more efficiently what could be done without them at much greater cost in labor.
But money has one feature that these other machines do not share. Because it is so pervasive, when it gets out of order, it throws a monkey wrench into the operation of all the other machines. The Great Contraction is the most dramatic example but not the only one. Every other major contraction in this country has been either produced by monetary disorder or greatly exacerbated by monetary disorder. Every major inflation has been produced by monetary expansion-mostly to meet the overriding demands of war which have forced the creation of money to supplement explicit taxation.
The first and most important lesson that history teaches about what monetary policy can do-and it is a lesson of the most profound importance-is that monetary policy can prevent money itself from being a major source of economic disturbance……
The words are just so profound. They sum up monetary history and experiments across world and across time in very few words.
There is a reason why history of India’s demonetisation tells us the reluctance of Indian central bank of going ahead with the move. There is a reason very few central banks and countries have gone ahead with the move at the first place.
Infact, why go far in monetary history. Just see today’s world economy. Its major source of instability is the monetary policy conducted by central banks which has made money a major source of economic disturbance.