Money Growth Has Slowed Sharply—Should Anybody Care? (original) (raw)
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SSRN Electronic Journal, 2000
preference theory of interest to fill the vacuum left by the flawed savings theory of interest (Bibow 2000b, 2001). Keynes recommended the design and deliberate management of fiscal and monetary policies as the "central controls" of the system that would actually produce the tendency toward aggregate stability at full employment which the "classics" merely postulated, together with institutions that would ensure a stable "wage unit" as the fulcrum of general price stability and structure of relative prices. (3) As Keynes's vision included the possibility that money could lastingly constrain real activity, he was truly a "money matters" man par excellence. How did Friedman arrive at counterrevolutionary policy prescriptions starting from a theoretical position that is, apparently, not too different from Keynes's? Textbook presentations that he (simply) reasserted the classical dichotomy and neutrality postulate do not get us very far. To Friedman money matters not because it might be neutral in some abstract long run, but because it has strong real effects in the short run-even though one might not be able to deliberately use this powerful tool to manage the economy and should thus design policies for the long run. An essential part in the story is empirical: Friedman's own empirical work and reading of monetary history, namely as a history of money supply driving nominal GDP. But there are also vital theoretical issues that need clarification, particularly the real balance effect which is widely held to have proved Keynes theoretically wrong. The remainder of this section will review Friedman's three most significant attempts to communicate his monetarist vision in quantity-theoretic (1956), Wicksellian (1968), and neo-Walrasian (1974) terms to his critical audience. Milton Friedman's (1956) "Restatement" of the Quantity Theory of Money According to Friedman (1956, 16), a quantity theorist is to be seen as someone who: (i) "accepts the empirical hypothesis that the demand for money is highly stable-more stable than functions such as the consumption function that are offered as alternative key relationships," (ii) "regards [the demand function for money] as playing a vital role in determining variables that he regards as of great importance for the analysis of the economy as a whole, such as the level of money income or of prices" (16),
Milton Friedman's Views on Method and Money Reconsidered in Light of the Housing Bubble
This paper argues that Milton Friedman's failed to recognize the asset bubbles leading up to the financial crisis of 2007-2008. It attributes this failure to the inductivist method that Friedman and Anna Schwartz used to formulate the quantity theory at the heart of the doctrine of monetarism. The "clinical method" used by Friedman and Schwartz was derived from Wesley C. Mitchell's work on business cycles and was not the method that Friedman propounded in his famous essay on positive economics. The clinical method of theory construction, because it relies heavily on statistical correlations between the money supply and other aggregate variables, led to a simplistic and truncated theory of the monetary transmission mechanism which completely neglected its complex "microeconomic" network of channels and pathways, particularly as they relate to the financial markets and the structure of capital and production.
The contemporary money-supply paradigm: Friedman and Patinkin
Journal of Macroeconomics, 1982
The contemporary money-supply paradigm is summarized in the expression M = mB. Friedman and Patinkin formulate money-supply models of that genre. This paper shows that their two models are identical. The underlying bases (i.e., the view of the role of economic theory) on which each is formulated are different, and this provides part of the explanation of why the same formal result has gone unrecognized.
"From Keynes to Friedman: Monetary Policy of 20th"
Research question includes affect of monetary policy on product’s demand. Monetary policy may incerase demands in markets for firm’s products. Assumption of study is that markets need money for demand. It is figured as market theory. Research topic explores theory of market and world money concept. It aims to use world money in market theory. This study adopts case exploration of Keynes, Friedman, and Fisher. This study is based on their figures. This study defends that world money is applied in global economy by quantity of global GDP. It is 60 trillion dollars, and 10% of that amount may become world money. Results of this study is that world money concept is applied through Fisher’s quantity theory in world economy. Major conclusion is that markets need money to increase demand, aligned with market theory, and world money supplies money for markets.
Milton Friedman's monetary economics and the quantity-theory tradition
Journal of International Money and Finance, 2009
This article provides a selective review of Milton Friedman's contributions to monetary economics focusing on five areas in particular: the demand for money, the joint historical and empirical work with Anna J. Schwartz, the theoretical and empirical analyses of the Phillips Curve, monetary policy and monetary dynamics.
The Influence of Irving Fisher on Milton Friedman’s Monetary Economics
Journal of the History of Economic Thought, 2013
This paper examines the influence of Irving Fisher’s writings on Milton Friedman’s work in monetary economics. We focus first on Fisher’s influences in monetary theory (the quantity theory of money, the Fisher effect, Gibson’s Paradox, the monetary theory of business cycles, and the Phillips Curve), and empirics (e.g., distributed lags.). Then we discuss Fisher and Friedman’s views on monetary policy and various schemes for monetary reform (the k% rule, freezing the monetary base, the compensated dollar, a mandate for price stability, 100% reserve money, and stamped money). Assessing the influence of an earlier economist’s writings on that of later scholars is a challenge. As a science progresses, the views of its earlier pioneers are absorbed in the weltanschauung. Fisher’s The Purchasing Power of Money as well as the work of Pigou and Marshall were the basic building blocks for later students of monetary economics. Thus, the Chicago School of the 1930s absorbed Fisher’s approach, ...
An Evaluation of Friedman's Monetary Instability Hypothesis
In this paper, I examine what I call Milton Friedman's Monetary Instability Hypothesis. Drawing on Friedman's work, I argue that there are two main components to this view. The first component is the idea that deviations between the public's demand for money and the supply of money are an important source of economic fluctuations. The second component of this view is that these deviations are primarily caused by fluctuations in the supply of money rather than the demand for money. Each of these components can be tested independently. To do so, I estimate an otherwise standard New Keynesian model, amended to include a money demand function consistent with Friedman's work and a money growth rule, for a period from 1875-1963. This structural model allows me to separately identify shocks to the money supply and shocks to money demand. I then use variance decompositions to assess the relative importance of shocks to the supply and demand for money. I find that shocks to the monetary base can account for up to 28% of the fluctuations in output whereas money demand shocks can account for less than 1% of such fluctuations. This provides support for Friedman's view.