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Book Notes: Money Mischief by Milton Friedman


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Book Notes: Money Mischief by Milton Friedman

Published ~1992


What is money - historically money has been metals - gold, silver, copper, iron, etc. 

It has also been shells, large stones (Caroline Islands), paper, cigarettes and many other goods.  Money can really be almost anything that is commonly accepted by people as a store of value.


Fiat money only has value because everyone thinks it does. 


Very often historical inflation has been caused by wars.  WWI, WW2, China when fighting the Japanese ~1940’s.


Generally a 2 year lag after money supply growth accelerates before increased inflation shows up.  Also a 2 year lag after Money supply growth declines and inflation comes down.


Pg 205

Mid 1960’s to late 1970s occurred for 3 reasons:  1.  Rapid growth in govt spending, 2.  Govt full employment policy and 3.  A mistaken policy pursued by the Fed

Higher Govt spending will not lead to inflation if financed by Higher taxes or borrowing

The other way to finance higher Govt spend is by increasing the quantity of money.  Essentially the US Govt can do this by selling Treasury Bonds to the Fed either directly or indirectly and increasing money into the economy.

Claims the Fed is clearly a branch of the government because ultimate authority rests with the Govt.



Politicians want full employment

Politicians want Govt Spending

Politicians/leaders don’t want to raise explicit taxes.  (Kings, etc have done the same throughout history).

Voters are short term oriented

Initially increasing the money supply tricks people and creates higher demand and it can take awhile for inflation to come about.

Raising interest rates and slowing Money Supply growth likely to cause a recession and hurt political prospects in the short run.


But like an alcoholic, although going great initially eventually ends up with a painful withdrawal before getting much better.  Political will comes in time.







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