Jim Devine wrote: > 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.
No? The money supply has real effects if it allows for output growth. It has a nominal effect if it translates into inflation. Well, of course! All I'm saying is that Friedman did *not* reject the idea that money supply could -- in principle -- have real (output) effects. On the contrary, he emphasized those cases. As far as I know, nowhere did Friedman hold a theory of real output determination based on (non-monetary) fundamentals (endowments, technology, and preferences). At most, one could show that Friedman had a dual view. In the short run, which was the main focus of his macroeconomics, real output determination was tied to the money supply. In the long run, it was determined by non-monetary fundamentals. One can argue that Friedman's notion of the natural rate of unemployment, a long-run concept (like Wicksell's notion of the "natural rate of interest," which inspired Friedman's NRU), is premised on absolute money neutrality, but even that I would doubt. IMO, Friedman's NRU is inherently "monetary" in the sense of Keynes (or Patinkin or McCallum). Friedman's NRU doesn't refer to a theoretical equilibrium involving real variables alone, with money to be incorporated later as an afterthought. Friedman's theoretical market framework was Keynesian, i.e. it stipulated "asset" markets (including money, where money is not merely a veil, but the perfectly "liquid" asset). In other words, implicitly, Friedman's NRU assumes a "monetarist" monetary policy. I remember that when I read the Monetary History in the early 2000s (and, for some reason, things I read this recently are blurrier in my head than those I read before, and please don't ask me about what I read this morning), I noted on the margin that Friedman and Schwartz were implicitly rejecting the notion of money neutrality even in the long run! Keynes' influence on Friedman was really huge. So, my impression is that, overall, Friedman's macroeconomics is intrinsically "monetary." This is precisely the reason why the New Classicals consider Friedman a Keynesian, not a "classical." To summarize, Friedman held the view that the money supply has real effects, particularly (although IMO not exclusively) in the short run. I recommend people to read Friedman's 1968 speech to the AEA. He didn't reject the idea that monetary policy works. On the contrary, he claimed it worked, although for ill. But, if it works for ill, then it works. The Great Depression resulted from a shortage in the monetary market, the Fed's fault. Therefore, the Fed could have avoided the hole if it had suitably expanded the money supply. Krugman is also arguing that monetary policy works (for good). He wants the Fed to do more, since Obama and Congress are not doing much. So, Krugman views Friedman as an ally -- as does Brad DeLong. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
