“Inflation is always and everywhere a monetary phenomenon,” once remarked economist and Nobel Prize recipient Milton Friedman. He likely meant that inflation is the more rapid increase in the supply of money relative to the output of goods and services which money is traded for.
As more and more money is issued relative to the output of goods and services in an economy, the money’s watered down and loses value. By this account, price inflation is not in itself rising prices. Rather, it’s the loss of purchasing power resulting from an inflating money supply.
Indeed, Friedman offered a shrewd insight. However, he also accompanied it with an opportunist mindset. Friedman saw promise in the phenomenon of monetary inflation. Moreover, he saw it as a means to improve human productivity and economic growth.
You see, a stable money supply was not good enough for Friedman. He advocated for moderate levels of monetary growth, and inflation, to perpetually stimulate the economy. By hardwiring consumers with the expectation of higher prices, policy makers could compel a relentless consumer demand. Continue reading
