In a recent letter to Greg Mankiw, posted today on Mankiw's blog, Milton Friedman writes:

Nothing that I have observed in recent decades has led me to change my mind about the desirability of a monetary rule which simply increased the quantity of money at a fixed rate month after month, year after year. That rule would get rid of the mistakes and that is probably about all you could expect to get from a monetary system.

Even better would be to abolish the Fed and mandate the Treasury to keep highpowered money at a constant numerical level.

This is consistent with what Friedman has been saying since 1984.

Regarding the base freeze proposal, Mankiw comments:

I would have thought that the experience of the 1930s argues against such a rule. If I recall correctly, most of the decline in the monetary aggregates during that period was attributable not to high-powered money but to inside money and the money multiplier. If we abolished the Fed and kept high-powered money constant, it seems that a similar set of events could potentially unfold.

Do we need to keep the Fed around because the money multiplier might collapse again? Mankiw is right that the money multiplier declined sharply in the 1930s, but why did it? The proximate cause of the collapse in the 1930s was bank runs and fear of more bank runs. The underlying reason for the bank runs was geographic and note-issue restrictions that make US banks unnecessarily fragile. There were no bank runs and no money-multiplier collapse in Canada in the 1930s, which had neither restriction. Fortunately we no longer have the geographic restrictions in the US. We still have note-issue restrictions. Friedman’s brief letter neglected to mention an important adjunct to his base-freeze proposal that he has elsewhere mentioned, which is that shifts in the public’s demand to hold currency could be accommodated by letting commercial banks freely issue currency redeemable for base money. With well-diversified note-issuing banks, a collapse of the money multiplier would not occur.