Milton Friedman on Inflation and Money Supply

In 1973, Japanese housewives going to market were faced with an unpleasant fact. The cash in their purses seemed to be losing its value. Prices were starting to soar as the awful story of inflation began to unfold once again. The Japanese government knew what to do. What's more, they were prepared to do it. When it was all over, economists were able to record precisely what had happened. In 1971, the quantity of money started to grow more rapidly. As always happens, inflation wasn't affected for a time. But by late 1972, it started to respond. In early ’73, the government reacted. It started to cut monetary growth. But inflation continued to soar for a time. The delayed reaction made 1973 a very tough year of recession. Inflation tumbled only when the government demonstrated its determination to keep monetary growth in check. It took five years to squeeze inflation out of the system. Japan had attained relative stability. Unfortunately, there's no way to avoid the difficult road the Japanese had to follow before they could have both low inflation and a healthy economy. First, they had to live through a recession until slow monetary growth had its delayed effect on inflation. Inflation is just like alcoholism. In both cases, when you start drinking or when you start printing too much money, the good effects come first and the bad effects only come later. That's why in both cases there is a strong temptation to overdo it, to drink too much and to print too much money. When it comes to the cure, it's the other way around. When you stop drinking or when you stop printing money, the bad effects come first and the good effects only come later. That's why it's so hard to persist with the cure.

Channel: Free To Choose Network

Views: 70,549

Keywords: Milton Friedman (Academic), Macroeconomics (Field Of Study), Money Supply, Economy, Japan (Country), Inflation (Quotation Subject), Economics (Field Of Study), Economist (Profession), Recession (Quotation Subject), United Kingdom (Country), United States Of America (Country), Politics, Government

Id: u6GWm0GW7gk

Length: 2min 7sec (127 seconds)

Published: Wed Apr 04 2012

Reddit Comments

[u/Louisvanderwright]

Regardless of what you think of his politics, Milton Friedman was THE founder of MMT and how he thinks is how every toad in DC and NYT was trained to think today. If the Fed decides inflation needs to be cleaned up, this is how they will do it.