Substantial Friedman

Milton Friedman is famous for having said "inflation is always and everywhere a monetary phenomenon." Indeed, he makes much of it in Money Mischief: "I believe I first published the statement in these words in Friedman (1963)," he writes. And in his preface he makes the statement the "central thesis" of his book.

Sometimes, though, writers leave out a word here and there. I do. In my previous post I wrote, "The tweak shows that money increased more quickly than prices." What I meant was, "The tweak shows that 'the quantity of money relative to output' increased more quickly than prices." Taken literally, the difference is significant. But extra words weigh down the thought and make it more difficult to toss and catch.

Writers leave out words sometimes. Friedman left out the word substantial. Not every time. But enough that the lighter phrase caught on. People say, "Inflation is always and everywhere a monetary phenomenon." Friedman said "substantial inflation is always and everywhere a monetary phenomenon." He even put it in italics.


Friedman said, "I know of no example in history of a substantial inflation lasting for more than a brief time that was not accompanied by a roughly corresponding rapid increase in the quantity of money; and no example of a rapid increase in the quantity of money that was not accompanied by a roughly corresponding substantial inflation."

He said, "In substantial inflations, money is the cause (or proximate cause), the rise in prices the effect."

Substantial.

Friedman puts the word in context -- more than moderate -- in his comments on Lien-sheng Yang's Money and Credit in China. That book "records a number of... paper money issues... in different parts of China and under various dynasties, each going through the same cycle of a period of initial stability, moderate and then substantial overissue, and eventual abandonment."

Friedman also considers the flip side of the problem: "There is strong evidence that a monetary crisis involving a substantial decline in the quantity of money is a necessary and sufficient condition for a major depression." Again: substantial.

The conclusion Friedman draws only softens his claim: "The conclusion is that substantial changes in prices or nominal income are almost always the result of changes in the nominal supply of money...."

// The original link is broken. Google is unable to find the quote in another link to Friedman's Money Mischief. However, the same quote appears in Free to Choose.
17 May 2016 ArtS