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Fifty years ago Milton Friedman published a book entitled A Program for Monetary Stability. In it he outlined a number of suggestions for the conduct of monetary and fiscal policies that he thought would contribute to monetary stability and pari passu to price stability and a greater degree of output/employment stability. In this paper I review some of his policy prescriptions in light of the financial and economic crisis of 2007–2009. From the perspective of financial development the world today is much different from the world that Friedman knew in the late 1950s. In what way would his policy recommendations have to be modified to account for these changes in financial development? To stabilize the banking system we argue that his proposal for 100 percent reserve banking merits serious consideration in current policy discussions. To stabilize asset markets we propose two policies that Friedman would not likely endorse. The first is to reinstate selective credit controls in the areas of the securities markets, the real estate market, and various commodity markets. The second policy designed to dampen excessive variability in the stock market is for the Central Bank to carry out some open market operations in an index fund of equities.

Over a half of a century ago Milton Friedman gave a series of lectures at Fordham University that were subsequently published under the title of A Program for Monetary Stability (1959) with a new preface added in 1992. In it he outlined a number of suggestions for the conduct of monetary and fiscal policies that he thought would contribute to monetary stability, and pari passu to price stability and a greater degree of output/employment stability. In this paper I review some of his policy prescriptions in light of the financial and economic crisis of 2007–2009. The goals of policy are the same today as they were in his day. The question is whether any of his policy recommendations in the late 1950s would have prevented or substantially blunted the financial and economic crisis that began to unfold in 2007. Of course from the perspective of financial development the world is very different today compared to when Friedman wrote. Would the financial development that has taken place between then and now render his policy prescriptions obsolete? In what ways would his policy proposals have to be modified to account for these changes in financial development? These are interesting questions that deserve further attention alongside the Dodd-Frank legislation, Basle III, and other proposals that have recently been offered by financial economists to further regulate our financial system.

The 2007–2009 financial and economic crisis has been a remarkable event. The fact that financial economists (who helped create the advanced and complicated financial architecture that some blame for facilitating the crisis) along with stabilizing and regulatory government organizations such as the Federal Reserve and the Treasury Department for the most part did not see it coming is remarkable. The fact that many of these same financial economists and government organizations are now offering solutions to this and future crises is also remarkable.16 Not being deterred by this incongruity we have in this paper outlined several suggestions for reforming the financial system in advanced economies with developed financial markets. These suggestions for reform are not particularly new although they have not surfaced in recent discussions on regulatory policy. The main suggestions were to: (i) move to a 100 percent reserve banking system,17