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Inflation was due to fears of Opec increasing oil prices That would depend on your understanding of inflation. The monetarist views, which it seems to me have

Inflation was due to fears of Opec increasing oil prices That would depend on your understanding of inflation. The monetarist views, which it seems to me have proven themselves out most successfully in the real world, say that nothing of the sort can happen. Inflation is caused by one thing, and that's an increase in the money supply. http://en.wikipedia.org/wiki/Inflation#Monetarist_view http://en.wikipedia.org/wiki/Inflation#Monetarist_view and moving off the gold standard Well, yes, but that's precisely the point. The end of Bretton Woods was already a done deal by the time we're talking about. We were well into the era that the Keynesians though they could play games "stimulating" the economy by injecting money, bringing down unemployment by so doing. The fact that this didn't achieve their goals is exactly what I was talking about, and one of the reasons you should be listening more to the Monetarists like Friedman, rather than to Keynes.

codexon 17y ago
Inflation is caused by one thing, and that's an increase in the money supply. That is plain wrong. Think about what would happen if the scarcity of crucial goods like food and shelter increased by 1000%. Would there be inflation? I'd put my money on it! Well, yes, but that's precisely the point. No, it is not precisely the point. The economy was already declining when Nixon moved off the gold standard. Why do you think he wanted to do it in the first place? And if your theory was correct, then why did the economy recover? Last time I checked, we didn't move back to gold in 1980.
nostrademons 17y ago
Check your assumptions. From the article you linked: "Velocity of money is often assumed to be constant, and the real value of output is determined in the long run by the productive capacity of the economy. Under these assumptions, the primary driver of the change in the general price level is changes in the quantity of money." Monetarists never claim that inflation is always and everywhere a monetary phenomena unless they're dumbing things down for the press. They claim that in the long run it's a monetary phenomena. There's still room in the monetarist model for short-term supply spikes like the OPEC oil crises of 1973 and 1979 that the grandparent poster alludes to. I'd also take issue with your statement that "you should be listening more to the Monetarists like Friedman, rather than to Keynes." They are not diametrically opposed. Friedman accepted Keynes; in fact, one of the reasons that monetarism was successful was because Friedman was one of the first people to accept Keynes on his own terms and then point out situations where Keynesian economics was unable to explain the observed data. Monetarism should be viewed as a refinement of Keynesianism, not a replacement.

codexon 17y ago

Inflation is caused by one thing, and that's an increase in the money supply. That is plain wrong. Think about what would happen if the scarcity of crucial goods like food and shelter increased by 1000%. Would there be inflation? I'd put my money on it! Well, yes, but that's precisely the point. No, it is not precisely the point. The economy was already declining when Nixon moved off the gold standard. Why do you think he wanted to do it in the first place? And if your theory was correct, then why did the economy recover? Last time I checked, we didn't move back to gold in 1980.

nostrademons 17y ago

Check your assumptions. From the article you linked: "Velocity of money is often assumed to be constant, and the real value of output is determined in the long run by the productive capacity of the economy. Under these assumptions, the primary driver of the change in the general price level is changes in the quantity of money." Monetarists never claim that inflation is always and everywhere a monetary phenomena unless they're dumbing things down for the press. They claim that in the long run it's a monetary phenomena. There's still room in the monetarist model for short-term supply spikes like the OPEC oil crises of 1973 and 1979 that the grandparent poster alludes to. I'd also take issue with your statement that "you should be listening more to the Monetarists like Friedman, rather than to Keynes." They are not diametrically opposed. Friedman accepted Keynes; in fact, one of the reasons that monetarism was successful was because Friedman was one of the first people to accept Keynes on his own terms and then point out situations where Keynesian economics was unable to explain the observed data. Monetarism should be viewed as a refinement of Keynesianism, not a replacement.