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Milton Friedman on inflation

Friedman's claim that inflation is a monetary phenomenon, produced by money growing faster than output, in his own words.

29 passages in the archive23 checked against the source6 not yet checked
  1. All other alleged causes of inflation—trade union intransigence, greedy business corporations, spendthrift consumers, bad crops, harsh winters, OPEC cartels and so on—are either consequences of inflation, or excuses by Washington, or sources of temporary blips of inflation.
    Why Inflation Persists
    Column, 1977, Newsweek (October 3, 1977); reprinted in full in the Congressional Record, Extensions of Remarks, September 29, 1977, p. 31684, introduced by Representative Parren J. Mitchell of Maryland, who gives it as appearing “in the October 3, 1977, issue of Newsweek”, Congressional Record, September 29, 1977, p. 31684
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  2. The basic source of inflation is the faster growth in the quantity of money than in output.
    Perspective on Inflation
    Column, 1974, Newsweek (June 1974); reprinted in the Congressional Record, Extensions of Remarks, June 18, 1974, pp. 19786 to 19787, introduced by Representative Jack Kemp of New York, who calls it “his column this week in Newsweek.” The reprint gives no issue date, and the chart that ran with the column is not reproduced, Congressional Record, June 18, 1974, pp. 19786 to 19787
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  3. For both long and short periods there is a consistent though not precise relation between the rate of growth of the quantity of money and the rate of growth of nominal income. If the quantity of money grows rapidly, so will nominal income, and conversely. The relation is much closer for long than for short periods
    Money Mischief
    Book, 1992, Ch. 2 The Mystery of Money
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  4. The rates of monetary growth specified by chairman Burns are too high. Yet, even so, actual monetary growth has been substantially higher.
    The Inflationary Fed
    Column, 1973, Newsweek, August 27, 1973; reprinted in the Congressional Record, Extensions of Remarks, November 7, 1973, p. 36327, introduced by Representative Robert Huber of Michigan as “Mr. Milton Friedman’s article that appeared in Newsweek of August 27, 1973”, Congressional Record, November 7, 1973, p. 36327
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  5. True, computed price-index numbers record double-digit inflation in early 1974. But these computed price-index numbers overstate the “real” inflation.
    Perspective on Inflation
    Column, 1974, Newsweek (June 1974); reprinted in the Congressional Record, Extensions of Remarks, June 18, 1974, pp. 19786 to 19787, introduced by Representative Jack Kemp of New York, who calls it “his column this week in Newsweek.” The reprint gives no issue date, and the chart that ran with the column is not reproduced, Congressional Record, June 18, 1974, pp. 19786 to 19787
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  6. Instead of simply requiring the Federal Reserve to report its “projections” or “targets” for monetary growth, let the Congress require the Fed to achieve specified rates of monetary growth (or specified levels of the quantity of money) within specified ranges of tolerance. That would combine responsibility and power. It would also enable the ordinary citizen to know whom to hold accountable for inflation.
    Why Inflation Persists
    Column, 1977, Newsweek (October 3, 1977); reprinted in full in the Congressional Record, Extensions of Remarks, September 29, 1977, p. 31684, introduced by Representative Parren J. Mitchell of Maryland, who gives it as appearing “in the October 3, 1977, issue of Newsweek”, Congressional Record, September 29, 1977, p. 31684
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  7. Why do we have inflation? Because we, the citizens, have demanded it. We have sent a message to Washington. We said, we want you to spend more on roads. We want you to spend more on health. We want you to spend more on education. But don't tax us for it. … And so the difference is paid for by the hidden tax of inflation, which is the only tax that can be imposed on the American people without anybody having to vote for it.
    The Open Mind
    Interview, 1977, The Open Mind, hosted by Richard Heffner, Episode “A Nobel Laureate on the American Economy” (May 3, 1977)
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  8. Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output. … A steady rate of monetary growth at a moderate level can provide a framework under which a country can have little inflation and much growth. It will not produce perfect stability; it will not produce heaven on earth; but it can make an important contribution to a stable economic society.
    The Counter-Revolution in Monetary Theory
    Lecture, 1970
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  9. The plain fact is that inflation is made in Washington, in that stately and impressive Grecian temple . . . that houses the Board of Governors of the Federal Reserve System.
    The Inflationary Fed
    Column, 1973, Newsweek, August 27, 1973; reprinted in the Congressional Record, Extensions of Remarks, November 7, 1973, p. 36327, introduced by Representative Robert Huber of Michigan as “Mr. Milton Friedman’s article that appeared in Newsweek of August 27, 1973”, Congressional Record, November 7, 1973, p. 36327
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  10. Inflation will not be stopped by words, only by actions. At the moment, we have the worst of two worlds. Nominal independence of the Federal Reserve without its effective exercise permits Congress and the President to evade responsibility for the creation of money to finance large government deficits.
    Why Inflation Persists
    Column, 1977, Newsweek (October 3, 1977); reprinted in full in the Congressional Record, Extensions of Remarks, September 29, 1977, p. 31684, introduced by Representative Parren J. Mitchell of Maryland, who gives it as appearing “in the October 3, 1977, issue of Newsweek”, Congressional Record, September 29, 1977, p. 31684
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  11. Inflation is the one form of taxation that can be imposed without legislation.
    Monetary Correction: A Proposal for Escalator Clauses to Reduce the Costs of Ending Inflation
    Journal article, 1974
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  12. The sharper response of production than of prices is typical. An inflationary process, once underway, develops an inertia of its own. It takes an economic slowdown to stop the acceleration of prices and, even then, it takes a long time to restore price stability. That is why it is so important to prevent inflation from gaining momentum.
    Monetary Policy
    Column, 1968, Newsweek (June 3, 1968); reprinted in the House Banking and Currency Committee’s 1968 Compendium on Monetary Policy Guidelines and Federal Reserve Structure, pp. 225–226, p. 226 of the 1968 House reprint
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  13. The future well-being of this country depends critically on whether, this time, intentions are translated promptly into performance.
    Perspective on Inflation
    Column, 1974, Newsweek (June 1974); reprinted in the Congressional Record, Extensions of Remarks, June 18, 1974, pp. 19786 to 19787, introduced by Representative Jack Kemp of New York, who calls it “his column this week in Newsweek.” The reprint gives no issue date, and the chart that ran with the column is not reproduced, Congressional Record, June 18, 1974, pp. 19786 to 19787
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  14. Jarvis-Gann has many defects. It is loosely drawn. It cuts only the property tax, which is by no means the worst tax. It does nothing to halt the unlegislated rise in taxes produced by inflation. Proposition 1 was a far better measure, and a revised version will be needed even if Jarvis-Gann is passed. Yet I strongly support Jarvis-Gann. It does cut taxes. It does raise obstacles to further increases in government spending. And it will not have the dire consequences its opponents threaten.
    A Progress Report
    Column, 1978, Newsweek (April 10, 1978); reprinted in the Congressional Record, Extensions of Remarks, April 4, 1978, pp. 8709 to 8710, introduced by Representative John H. Rousselot of California, who describes it as “his byline article which appeared in the April 10, 1978 issue of Newsweek”, Congressional Record, April 4, 1978, pp. 8709 to 8710
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  15. If the relation that has prevailed between money and prices for the past dozen years continues, and if the Federal Reserve continues to permit the quantity of money to grow by 10 per cent a year, inflation will proceed at a rate of about 6 per cent. Judged not by pronouncements, not by intentions, but by performance, that is the rate that monetary policy for the past four years has been directed at producing.
    Perspective on Inflation
    Column, 1974, Newsweek (June 1974); reprinted in the Congressional Record, Extensions of Remarks, June 18, 1974, pp. 19786 to 19787, introduced by Representative Jack Kemp of New York, who calls it “his column this week in Newsweek.” The reprint gives no issue date, and the chart that ran with the column is not reproduced, Congressional Record, June 18, 1974, pp. 19786 to 19787
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  16. Keep your eye on one thing and one thing only: how much government is spending, because that is the true tax. Every budget is balanced. There is no such thing as an unbalanced federal budget. You're paying for it. If you're not paying for it in the form of explicit taxes, you're paying for it indirectly in the form of inflation or in the form of borrowing. The thing that you keep your eye on is what government spends. And the real problem is to hold down government spending as a fraction of our income. And if you do that, you can stop worrying about the deficit.
    Speech at San Diego Chamber of Commerce
    Speech, 1978
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  17. The catch-up will no doubt carry too far, but we should shortly be back to the basic underlying inflation of about 6 per cent per year. That should be an occasion for concern, not for congratulation.
    Perspective on Inflation
    Column, 1974, Newsweek (June 1974); reprinted in the Congressional Record, Extensions of Remarks, June 18, 1974, pp. 19786 to 19787, introduced by Representative Jack Kemp of New York, who calls it “his column this week in Newsweek.” The reprint gives no issue date, and the chart that ran with the column is not reproduced, Congressional Record, June 18, 1974, pp. 19786 to 19787
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  18. There is one and only one basic cause of inflation: too high a rate of growth in the quantity of money—too much money chasing the available supply of goods and services.
    Why Inflation Persists
    Column, 1977, Newsweek (October 3, 1977); reprinted in full in the Congressional Record, Extensions of Remarks, September 29, 1977, p. 31684, introduced by Representative Parren J. Mitchell of Maryland, who gives it as appearing “in the October 3, 1977, issue of Newsweek”, Congressional Record, September 29, 1977, p. 31684
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  19. There is one and only one basic cure for inflation: slowing monetary growth. But that cure is easier to state than to put into effect: witness our repeated abandonment of the cure.
    Why Inflation Persists
    Column, 1977, Newsweek (October 3, 1977); reprinted in full in the Congressional Record, Extensions of Remarks, September 29, 1977, p. 31684, introduced by Representative Parren J. Mitchell of Maryland, who gives it as appearing “in the October 3, 1977, issue of Newsweek”, Congressional Record, September 29, 1977, p. 31684
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  20. The only way you could get the inflation down was by having monetary contraction. There was no way you could do that without having a temporary recession. The great error in the earlier period had been that whenever there was a little contraction there was a tendency to expand the money supply rapidly in order to avoid unemployment. That stop-and-go policy was really what bedeviled the Fed during the '60s and '70s.
    Commanding Heights: Milton Friedman interview
    Interview, 2000, PBS, “On Ronald Reagan,” interview conducted October 1, 2000
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  21. Over short periods, many factors other than monetary growth affect the rate of inflation. But, as chairman Burns implied, over long periods, monetary growth is dominant.
    The Inflationary Fed
    Column, 1973, Newsweek, August 27, 1973; reprinted in the Congressional Record, Extensions of Remarks, November 7, 1973, p. 36327, introduced by Representative Robert Huber of Michigan as “Mr. Milton Friedman’s article that appeared in Newsweek of August 27, 1973”, Congressional Record, November 7, 1973, p. 36327
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  22. Over short periods, the relation between growth in money and growth in nominal income is often hard to see, partly because the relation is less close for short than for long periods, but mostly because it takes time for changes in monetary growth to affect income. And how long a time is itself variable. Today's income growth is not closely related to today's monetary growth; it depends on what has been happening to money in the past. What happens to money today affects what is going to happen to income in the future
    Money Mischief
    Book, 1992, Ch. 2 The Mystery of Money
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  23. Prices have clearly danced to the tune of money.
    Perspective on Inflation
    Column, 1974, Newsweek (June 1974); reprinted in the Congressional Record, Extensions of Remarks, June 18, 1974, pp. 19786 to 19787, introduced by Representative Jack Kemp of New York, who calls it “his column this week in Newsweek.” The reprint gives no issue date, and the chart that ran with the column is not reproduced, Congressional Record, June 18, 1974, pp. 19786 to 19787
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  24. It is essential to distinguish changes in relative prices from changes in absolute prices. The special conditions that drove up the prices of oil and food required purchasers to spend more on them, leaving less to spend on other items. Did that not force other prices to go down or to rise less rapidly than otherwise? Why should the average level of all prices be affected significantly by changes in the prices of some things relative to others?
    Perspective on Inflation
    Column, 1974, Newsweek (June 1974); reprinted in the Congressional Record, Extensions of Remarks, June 18, 1974, pp. 19786 to 19787, introduced by Representative Jack Kemp of New York, who calls it “his column this week in Newsweek.” The reprint gives no issue date, and the chart that ran with the column is not reproduced, Congressional Record, June 18, 1974, pp. 19786 to 19787
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  25. It takes several years for monetary growth to exert its full influence on prices. As a result, we have so far experienced only the early effects of the nearly 8 percent rate of growth of the past year and a half.
    The Inflationary Fed
    Column, 1973, Newsweek, August 27, 1973; reprinted in the Congressional Record, Extensions of Remarks, November 7, 1973, p. 36327, introduced by Representative Robert Huber of Michigan as “Mr. Milton Friedman’s article that appeared in Newsweek of August 27, 1973”, Congressional Record, November 7, 1973, p. 36327
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  26. Stagflation was the end of naive Keynesianism. Now obviously the term "Keynesian" can mean anything you want it to mean, and so you have new Keynesianism, but this particular feature was put to an end by the stagflation episode.
    Commanding Heights: Milton Friedman interview
    Interview, 2000, PBS, “On John Maynard Keynes,” interview conducted October 1, 2000
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  27. To state this conclusion differently, there is always a temporary trade-off between inflation and unemployment; there is no permanent trade-off. ( … ) The widespread belief that there is a permanent trade-off is a sophisticated version of the confusion between “high” and “rising” that we all recognize in simpler forms. A rising rate of inflation may reduce unemployment, a high rate will not.
    The Role of Monetary Policy
    Journal article, 1968, American Economic Review 58, no. 1 (March 1968), pp. 1–17; reprinted in the House Banking and Currency Committee’s 1968 Compendium on Monetary Policy Guidelines and Federal Reserve Structure, pp. 214–224, p. 220 of the 1968 House reprint
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  28. The use of quantity of money as a target has not been a success. I'm not sure that I would as of today push it as hard as I once did.
    Financial Times
    Column, 2003, Financial Times
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  29. What now explains the divergence between the Fed’s promises and its performance? Why does the Fed remain an engine of inflation? I confess that I am baffled.
    The Inflationary Fed
    Column, 1973, Newsweek, August 27, 1973; reprinted in the Congressional Record, Extensions of Remarks, November 7, 1973, p. 36327, introduced by Representative Robert Huber of Michigan as “Mr. Milton Friedman’s article that appeared in Newsweek of August 27, 1973”, Congressional Record, November 7, 1973, p. 36327
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