The Schwartz

The name Anna Schwartz should ring a bell. She wrote a very great book (which I never read) with Milton Friedman, who was a very great man. Schwartz has some thoughts on the money supply, here. I have just a few remarks.

The Wrong War

Back in the early 1990s I was all gung-ho for Milton Friedman: Prices go up because the quantity of money goes up, always and everywhere. Amen.

And then I got a new job with a small steel warehouse. The counter man -- Wesley, his name was -- once said something I never forgot. He said, "We have to raise our prices, because our costs are going up."

This wasn't Milton Friedman's explanation. It was something else. As I look back now, it is clear to me that "always and everywhere" is not the same as "only." Friedman said prices go up when the quantity of money goes up, always and everywhere. He didn't say that was the only reason prices go up.

When you raise your prices because your customers have "too much money," your good profit gets better. When you raise your prices because you have to, it's because your profit is being squeezed. These two worlds are totally unlike one another.

Milton Friedman explained demand-pull inflation. Wesley introduced me to cost-push. Everybody today is familiar with Wesley's problem. Our costs are going up. Health care costs. Gasoline and heating oil. Candy bars and coffee. Costs are going up and it's tough to make ends meet. We have met the enemy and it is cost-push inflation.