From the long-run point of view, the problem of monetary policy reduces primarily to the desired rate of inflation and the best way to obtain that rate. This is so for reasons which I discussed in my first lecture: first, because monetary policy is concerned primarily with the quantity of money, not with the terms and availability of credit; second, because inflation is always and everywhere a monetary phenomenon.

Inflation always and everywhere reflects a more rapid increase in the quantity of money than it does in output. Of course, the reasons for the increase in the quantity of money are not always the same, but nothing will produce sustained inflation unless it produces a more rapid increase in the quantity of money than in output, and nothing will stop inflation unless it causes an end to an unduly rapid rise in the quantity of money. Hence, if we’re going to talk about monetary policy, we are in effect going to talk about policy towards inflation.

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