Milton Friedman stated that inflation is "always and everywhere a monetary phenomenon,"
Well inflation is rising slowly and I dont see the government printing more $$ for quite some time.
So please explain how the Friedman philosphy works for the past year.
Friedman followers! Why is inflation rising this year?
byu/aquavelva5 inAskEconomics
Posted by aquavelva5
2 Comments
Friedman is talking about long run sustained inflation. Not the short run business cycle fluctuations. Specifically he is talking about the relationship between money growth, real output growth, and prices (MV=PY). Friedman knew that monetary policy can affect real variables like unemployment and output in the short run. V can fluctuate in the short run. In Monetary History of US he is arguing that the long run price level is only from that relationship.
The equation of exchange is MV = PQ where M is the money supply, V is the velocity of money, P is prices (1xn matrix), and Q is quantities (nx1 matrix so their product is a scalar). If M and V stay constant while Q drops, then P must increase.
Friedman’s commentary is much more accurate in the long run than the short run, though velocity is hardly [stable](https://fred.stlouisfed.org/series/M2V).