"We cannot escape the need for a central bank. The United States before the Federal Reserve Act suffered from chronic deflation and financial panics; for this reason the period from 1873 to 1896 was known as the Great Depression, until the 1930s got that title. In the past century only the communist countries dispensed with central banks and private banking firms, and this arrangement did not serve them well. For this reason, I cannot join in supporting bills that would repeal the Federal Reserve Act or bar lending by commercial banks."He also argued in favor of the Humphrey-Hawkins Act (note that he was a member of the team that drafted the legislation). The Fed mandate is important for him, and this is how he justifies it why he and his monetarists colleagues alike worked to draft:
"The “dual mandate,” which was expressed as “to promote full employment, production, and real income, balanced growth, adequate productivity growth, proper attention to national priorities, and reasonable price stability” in the preamble of the Humphrey-Hawkins Act and as “maximum employment, stable prices and moderate long-term interest rates” in the Federal Reserve Act.
My staff colleagues were committed monetarists. They believed that the Federal Reserve should pursue a policy of monetary control, to contain inflation. But they did not try to dictate that to the Federal Reserve. Nor would I have tried to dictate the pursuit of full employment over all other policy goals. Writing economic theory into law is dangerous and we steered clear of it as best we could."
Read the rest here.