Milton Friedman on Inflation and Money Supply

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.

18 thoughts on “Milton Friedman on Inflation and Money Supply

  1. passed As-level eco with an A grade but only now do i understand why they would print so much money when it was obvious it would lead to inflation. haha

  2. as you probably school economics is full of fallacious keynesian rubbish such as certain market failures, negative externalities

  3. the arguments on those topics are full of fallacies. E.g. roads are a market failure, that the market would never fulfill that demand so the government has to do it, and the same with education and healthcare which are listed as examples of market failure. And that the government has to deal with negative externalities even though the market provides mechanisms for dealing with those too.

  4. Such a simple Civics lesson. I just need to stock up on lots of food because food prices will go through the roof. We are headed for a bad fall and if you ever see these animals go crazy on Black Friday sales can you imagine what heinous acts of violence that will descend upon these animals when there is not food in the supermarkets?

  5. A Friedman and Sowell or Friedman and Paul ticket would have been nice. Mr.
    Friedman would never have run with Mitt.

  6. It was so effective that it led to a prolonged period of deflation. Now they are printing money furiously trying to generate inflation

  7. Then according to Milton our government and big corporations are drunk on trillions of dollars of cheap money.  Something bad is going to happen.

  8. inflation is when money supply grows faster than goods produced, but those that produce the goods of value simply obtain more of the money but the same percent, hence you pay more… if you are not earning more if it a sign your work is of less value and this is how efficiency happens because people can move into what is valued, and what is not will collapse via creative destruction. inflation is actually a good thing, if your work is of value to society and it's income is matching inflation or beating it, this means your work is viable.

Leave a Reply

Your email address will not be published. Required fields are marked *