ave steeled economists and policy makers to ever greater resolve to fight "a great battle . . . waged against the demon of inflation that had damaged and distorted the U.S. economy since the late 1960s" (Mussa, 1994, p. 81). Cool-headed analysis has not prevailed in trying to determine whether inflation is essentially monetary, nonmonetary, or structural in origin. Yet, even Milton Friedman made that point very clearly in a now-forgotten debate with Robert Roosa, published in an AEI book (see Milton Friedman, 1967). Changes in relative prices, or the real terms of trade, do feed into the CPI, but such impulses (from oil price and agricultural price jumps) are not a monetary phenomena and cannot be corrected by central bank restraint (see Barrel, 1984, pp. 20-22; see also Rostow, 1978). At least half the decline in the CPI inflation rate in the early 1980s was attributed directly to the fall in oil prices (McClain, 1985). Monetary restraint might have contributed to the oil price fall by depressing global demand but only by imposing the highest unemployment since the Great Depression - 9.7 percent in 1982 and 9.6 percent in 1983. That such huge periodic costs of errant monetary policy should be tolerated for some twenty years with apparently little learned from the repeated episodes - indicates the power of the inflation myth on the popular mind. That such costs have been totally disregarded in public forums on monetary policy is sufficient grounds for reigning in central bank independence. Federal Reserve Chair Alan Greenspan served as President Ford's CEA chairman and closely advised President Reagan. His conservative credentials are firmly established. Despite the heavy economic and social costs of Volker's monetarist experiment in fighting inflation in the early 1980s, Greenspan pursued the Fed's anti-inflationary efforts with particular zeal, periodically talking about a stable price level, or zero-inflation rate as a sensible Fed...
