I sent this by mistake. Here's the corrected version. me: >> 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.
Julio Huato wrote: > 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. Yes, MF (unlike the "New Classicals") did see money as having a real effect on real output. However, he saw a zero inflation rate as an attainable goal at full employment (the "natural" rate of unemployment), something that goes against the idea that there's a certain amount of inflation built into the normal workings of the system (as in the greasing the wheels of commerce view). > 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. yes, that long-run/short-run dichotomy was central to his view. While the "New Classicals" see no distinction, MF emphasized it. But he saw the workings of the market as moving it relatively quickly to the "natural" rate, unless the government and/or Federal Reserve prevented that move. > 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. yes, the "natural" rate of U is a long-term concept, as discussed above. > 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. to MF, money was usually not simply a "veil." (The exception would be in some of his op-ed pieces in the Wall Street JOURNAL, NEWSWEEK, etc.) Money clearly had an effect on real production in his view, but he posited a preexisting long-term equilibrium (what was ground out by a general equilibrium model that takes into account "imperfections." To MF, that long-run equilibrium existed independently of short-term dynamics, so that there are no "hysteresis" or path-dependency effects. (to quote him: the long-term NRU equilibrium "would be ground out by the Walrasian system of general equilibrium equations, provided there is imbedded in them the actual structural characteristics of the labor and commodity markets, including market imperfections, stochastic variability of demands and supplies, the cost of gathering information about job vacancies and labor availabilities, the costs of mobility, and so on." BTW, no-one has ever created a model of this sort with all of the imperfections "imbedded" in a GE model.) >> 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." I agree that MF was a Keynesian in many ways, though it's more accurate to say that the dominant "Keynesian" orthodoxy in the US is in many ways MF-type monetarist (without assuming a predictable relationship between the money supply and nominal GDP.) >> 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 >> > > > > -- > Jim Devine > "All science would be superfluous if the form of appearance of things > directly coincided with their essence." -- KM > -- 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
