me: >> it's true that MF was crazy (perhaps like a fox), but it seems to me >> that Mill was talking about the (non-Friedmaniac) view that a little >> bit of inflation greases the wheels of industry.
Julio: > Actually, that was the Friedmaniac view. Friedman was against an > oversupply of money but he did believe that a steady supply of money > was necessary for growth. No, MF thought that the money supply should rise steadily to allow for _real_ growth (i.e., of real GDP). It was not to allow inflation (a rising GDP deflator) that would grease the wheels of commerce. Now, he did think that there likely were errors in estimates of the growth of potential GDP and the velocity of money, so that the steady rate of growth of the money supply might cause (mild) inflation, but that was an unwanted side-effect. MF was a predecessor of (and spirit guide to) the contemporary folks who argue for targeting the inflation rate at zero. In contrast, there's the view that Charles Schultze developed in the 1950s that says that prices and/or wages do not fall easily, so that normal shifts in demand between sectors would cause rising prices in some industries without concomitant falls in prices in other sectors. (This view -- and the idea that a little bit of inflation is needed to grease the wheels -- used to be popular among businesscritters.) This means that "creeping inflation" is a normal fact of a modern industrial capitalist economy. If the money supply increases only to allow the normal growth of potential output, in this view, that would imply a steady fall in actual GDP relative to potential (and rising unemployment rates). If MF recognized the downward stickiness of wages and/or prices, I bet that he would have called for "reforms" to make the economy more like the perfect market he loved. > The Friedman/Schwartz's (monetary) > explanation of the Great Depression flows from this. Their argument is that the GD arose because the Fed allowed a drastic _fall_ in the (nominal) money supply. MF thus argued that the money supply should be kept growing a constant rate of growth in order to encourage and allow for real growth. He was not concerned with deflation, if I remember correctly. FWIW, neither deflation nor Irving Fisher appear in the index of THE GREAT CONTRACTION, a part of G&S's MONETARY HISTORY that appears as a separate paperback. > Krugman is > arguing here that Keynesians and Monetarists share the belief in the > basic mechanism of monetary policy, even if they disagree in what is > the right way to conduct it.... that seems right. -- Jim Devine "All science would be superfluous if the form of appearance of things directly coincided with their essence." -- KM _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
