4 ms·

Actually money supply should ideally match total demand for money. Real economic output is not super relevant.

• sigil 15y ago
  Milton Friedman disagrees and measures inflation relative to output in his book on monetary phenomena [1]. Since you're an economist (right?) I'd be interested in why you think he's got the wrong measure. [1] http://books.google.com/books?id=ZNAhXe2pz1cC&lpg=PA196&ots=s51lXrnrkZ&dq=milton%20friedman%20money%20mischief%20match&pg=PA193#v=onepage&q&f=false http://books.google.com/books?id=ZNAhXe2pz1cC&lpg=PA196&...
  • acslater00 15y ago
    I'm not disagreeing with Milton Friedman at all. Read the sentence "Prices might even fall gradually as higher incomes led people to want to hold a large fraction of their wealth in the form of money." Inflation is a Money Supply / Money Demand phenomenon. In the long term, Money Demand tracks real output, but in the short term (such as the recession we're currently in) you can see major swings in demand that counteract what would normally be a quite inflationary money printing exercise.
    • sigil 15y ago
      So you agree that in the long term, money supply should closely follow real output. It's only in the short term that the Fed is allowed to untether them for the purposes of intervention. Let's not forget that the Fed's monetary policy in the 2000's helped create this situation: economic intervention necessitates further economic interventions. It's no wonder people are heading for the exits via BitCoin.