SNAFU

Milton Friedman said "Inflation is always and everywhere a monetary phenomenon". He did not say inflation is only a monetary phenomenon. He did not say the increase of money is the only force at work.

People assume that the increase of money is the only force at work. But Friedman didn't say that. People assume that if there is inflation you can clamp down on the money and inflation will go away, and everything is better and nothing is worse by it. But what if there was some other force at work?

What if there was a situation which, to be resolved, requires increase in the quantity of money? By clamping down on the money we could make the inflation go away. But that would likely make the other situation worse, the one that requires monetary increase.


Paul Volcker, saying "the inflation process is ultimately related to excessive growth in money and credit", ignored any possible situation that might require increase in the quantity of money.

Paul Krugman, saying "Any attempt to tell a story about inflationary risks that does not explain where excess demand for goods comes in is, necessarily, monetary mumbo-jumbo", ignored any possible situation that might require increase in the quantity of money.

Bill Mitchell, writing of the government "taking a dollar" from people to "manage total spending" in order to avoid going "beyond the inflation barrier", ignores any possible situation that might require increase in the quantity of money.

Scott Sumner, who says "It's kind of scary when top Fed officials have forgotten that inflation is a monetary phenomenon", ignores any possible situation that might require increase in the quantity of money.


A large accumulation of debt requires a large debt service and drains a large quantity of money from circulation. To maintain a given volume of spending, an increase in the quantity of money is required. Inadequate increase leads to stagnation. As debt grows larger, this situation grows worse.