Friedman's False Assumption

Although he did not originate the monetary theory formula: MV = PT, Professor Milton Friedman's contribution to monetary theory is the idea that the money supply and the velocity of money can be controlled. In fact, Friedmans thesis is that a stable money supply growing at a fixed rate increase of 3% is the key to economic equilibrium at full employment. This video asserts our current economic climate, the Great Depression of the 1930's and the economy of Japan in the 1990's proves Friedman's theory to be false. All three eras prove the impossibility of controlling the money supply or the velocity of money.

Category:

News & Politics

Tags:

• milton
• friedman
• monetary
• theory
• velocity
• of
• money
• liquidity
• trap
• MV=PT
• john
• matnard
• keynes

[ussseaw0lf]

So lets get this straight, you say the Money Supply (M) is lowering because banks aren't lending. You say the rate of transactions (V) s low because people aren't spending. How do these two statements prove Friedman's assumptions wrong? You have simply inputed values (albeit vague ones) into the formula without looking at the result. Well lets look at the other half of the equation and find out! The result: prices fall (P) and GDP (Q) falls. WOW thanks for proving Friedman right!

[ussseaw0lf]

I'm being facetious of course because I can no more prove Friedman correct with vague values than you can prove him wrong with such values. What you need is hard data to test this theory against. Nobody doing so has been able to prove him wrong using hard data. The harshest critics of MV=PQ say that prices are resistant to change, but that's only for the short term (i.e. menus)

I beg you, before you put these videos up, study. Then study some more. Naomi Klein is not economics.

[radiohogan]

@ussseaw0lf

You pose as a "smart ass." It is so American. Have you earned a degree from a college or university I have heard of? Is your degree in economics.

The "hard data" you request is the 20 year long ongoing recession in Japan. I mentioned this in my video. Do you watch my videos?

[ussseaw0lf]

Really, I lived in Japan for years. Industry in Sasebo-shi, Nagasaki-ken where I lived was alive and well. There was also very little unemployment.

Economists have struggled with how to characterize Japan's policies. You can call it socialists in many areas, but more capitalist than the US in many others. One thing I realized at the Fukuoka Shinkanzen station was that for all the time I spent there, I still had a lot to learn.

I would just love to see your hard data.

[radiohogan]

@ussseaw0lf

Please Google Economic history of Japan. You will find many references about the deflation or recession in Japan for 1990 to 2006.

You are confusing personal anecdote (your own) and a Sociological Imagination. This is so surprising in a Hard Data person.

[radiohogan]

@ussseaw0lf

You either did not listen to my video, or you did not understand it or you are disingenuous in the extreme. I did not say the money supply is being lowered by banks inability to find a demand for money (lower V). The video is all about lower V.

If you don't get it, no problem. I am not here to teach you.

[franks2732]

What is really funny is that "economics is a social science" the same as welfare, political sciences etc. Can someone please explain how come these right wing idiots continually claim the miracle of their predictions after the event-Even when they get it wrong they point to those who guessed the right way as an endorsement of their own ideological POV -yes and Bush soft (thats Obama) has screwed all you Americans over universal healthcare-who would have guessed?

[zsylvana]

Ixtmatus!Your from Kambodja you wrote.

Tell me are there many Friedman admirers in Kambodja nowadays?You english seem pretty good and you have worked especially hard on swordoms i se?Is Friedmans policy popular in recent Kambodja?Is he popular among ordinary Kambodjan people?I am just curios.

[dick391]

Friedman was for most his life a monetary Keynesian. He believed that the government could and should manage the money supply through the federal reserve. You are absolutely right that he (as well as all other monetary Keynesians) have been discredited.

The only "correct" money supply is the one determined in a free market without government intervention. The only "correct" interest rate is the one determined by markets, not the Fed. The Fed needs to be abolished, plain and simple.

[vik239n]

Read a book, perhaps? That is, other than Mises and Rothbard.

[vik239n]

The problem is that MV=PT assumes that T, i.e., the demand for money, is only a transactional demand. Money is demanded for many other reasons a convenient middle to the circulation of commodities. Once that is recognized, that is once you read the General Theory, even Say's Law collapses. If aggregate supply is to be equal to aggregate demand money cannot be removed from the system. Money cannot be demanded for any reason other than the circulation of commodities. The devil is in the 'T".

[62636263c]

@bonfirejovi Inflation is a crime perpetrated on the American people by the Federal Reserve. It is a crime and those perpetrating it should be treated accordingly. There should be serious prison time for every living Fed policy maker.

[62636263c]

@radiohogan One huge difference is that the Japanese borrowed from the Japanese. We are getting our money from everywhere but ourselves, and don't tell me that the Federal Reserve is ourselves because nothing could be further from the truth. Once that V does pick up, even a little bit we will see huge inflation, and don't even think about the Fed will get the money supply down in time to stop it. A little bit of inflation is good about like a little bit of AIDS is good. Inflation is a crime.