fred schultz was federal reserve board vice-chairman in 1979.n you have inflation, money becomes worth less and financial assets of bonds and stocks don't respond as well. you need to go out and buy things. you need to buy art, stamps, gold, land, and houses. people got in the habit of going out and borrowing all they could borrow and spending all they could spend. it takes a long time to change the way people carry out their activities. in the 1970s people were convinced we would get inflation under control, and only in the latter part of the 1970s, '78 and '79, did they become convinced that we wouldn't. that's when inflation really began to heat up very rapidly. in 1979's closing months federal reserve chairman paul volcker announced a new tight money policy to counter inflation. he was forced to abandon this in 1980's recession. 1981 brought a new president and renewed determination to clamp down on inflation. but the reagan administration wanted it all, both lower inflation and higher growth. the fed sent out warning signals. we kept saying

schoumacher: fred schultz was vice-chairman of the fed board under volcker. the major change was a difference in how monetary policy was going to be carried out. before that, there habeen an effort to try to have relatively slow interest rate changes. that clearly was not doing the job of controlling the economy in this kind of a very volatile inflationary environment that had appeared in 1979. and so, the change was to go to strict targeting on the money supply alone. the effect of that is, if you're not paying any attention to the price of money -- which is what interest rates are -- the effect of targeting entirely on the supply is that the price of money is going to change a good deal more. schoumacher: by the end of the year, interest rates began to rise, and rise dramatically. by febary, the prime rate had reached a record 20%. among the first to feel the squeeze were small businessmen. we understand what the objective of the national government is, what the objective of the fed is, but we think that what can be a cure for the country's ills can be fata