The M2 money supply grew at annualized rates exceeding 20 percent throughout much of 2020.1 Money growth has eased somewhat in 2021 but continues to run at rates well above 10 percent per year. As a result, M2 stands more than 36 percent higher today than it did at the end of 2019.

Figure 1 confirms that nothing like this has been seen before, at least not since 1960 and not even during the high-inflation years of the 1970s.

These numbers, by themselves, raise the strong possibility that we have entered a new and quite remarkable era in US monetary history. Does the past serve as any guide to what this new era might eventually bring? What would Milton Friedman say?

Although Friedman’s contributions range broadly across many areas of economics, he is best known for his research on monetary history, conducted jointly with Anna J. Schwartz.2 Friedman and Schwartz’s Monetary History of the United States, particularly its chapter on the Great Depression of 1929–1933, remains one of his most famous works.3 That volume uses a narrative approach to link fluctuations in the money supply to subsequent movements in output, employment, and inflation. It thereby identifies monetary instability as the principal driving force behind instability in the economy as a whole.