These arguments led Friedman to the conclusion that the central bank in the future will become “an army with only a signal corps”. Central banks will only be able to indicate to the private sector how they believe monetary conditions should develop, but will be unable to do anything about this if the private sector has a different view.
Examples of this include the Stability and Growth Pact and the recently agreed, and much to be welcomed, “debt brake” built into German law. Activity in the private sector is often governed by the quest for short-term profits. Seeking profits is legitimate and an important motivation in a market economy, but an excessive gearing towards the short-term is problematic.