We Make A Mistake If We Ignore History And Why We Should Not Ignore Milton Friedman on Money

Too much money all at once and you get inflation? Well, the evidence suggests that money is the main source of inflationary impulse. Actually, we may not get inflation because we may be increasing money at a time of growth and the growth may require more money. The problem is that if we do not know when growth will occur, we do not know when we should have more money. It's not a question of Keynes versus Friedman. It's a question of the economics of short run expectations and risk against long term prudence and hedging. Keynes was a risk taker as we see from his speculation at Cambridge in commodities. Friedman was a hedger who knew that too much money at the wrong time produced real social problems down the road.

We have seen the inflation and now we are seeing more risk taking should the growth that we all want to see not happen. Well, the reality's that the world is growing and it needs dollars because dollars are the only world currency apart from gold and SDRs. That SDRs get translated into dollars at some point is self evident and that SDRs as dollars are hot money is risky. Should however the dollars produce a bout of commodity inflation similar to what happened in the 1970s, we would have real problems.

The risk is real that we will see a race to commodities out of dollars and should that happen we will get out our Milton Friedman papers and understand that he said that he told us so. What are you in favor of inflation as a risk or growth. Chances are that it is the weaker advanced economies that will suffer most!

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