View Full Version : Lecture: Seven sects of macroeconomic error, part

11-15-2013, 01:08 PM
Another anti-Friedman commentary. Very interesting:

Milton Friedman thought that it was sufficient simply to keep the money stock on a stable growth path--that that was the only set of strategic interventions in financial markets necessary to ensure constant full employment. Why did he think this? I believe that there are two reasons. The first was that if you look from say 1980 or so back into the past, the times when the money stock is unstable are the times when there are depressions. The times when the money stock is stable are times when there are no depressions. You could argue whether instability in the money stock was cause or effect of depressions. Milton Friedman thought that instability in the money stock was cause. Others thought it was the effect. They argued back and both. It was not clear. Of course, it is clear now: because the Federal Reserve tried successfully to prevent a decline in the money stock in 2008, it is now clear to us that much of past money-demand correlations arose because when demand fell the banking system came under pressure to shrink the money stock.