History, Economic and Political Relationships, Second Edition
Chapter 2: Inflation and monetary regimes
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. (Milton Friedman, 1970, p. 24) It is one of the main purposes of this book to show that inflations are indeed monetary phenomena. But in which sense is Friedman’s statement true? First it has to be asked: Why and under which conditions does a ‘more rapid increase in the quantity of money than in output’ come about? This question can be answered easily. For the stock of money can only rise strongly if the money-creating agencies are technically and institutionally enabled to do so (see Sections 2.2 to 2.6). The second question asks: About which kind of money we are speaking? And third, it has to be clarified whether the increase of the money supply as envisioned by Friedman is only a necessary or also a sufficient condition for future inflation. As to the necessary condition, the empirical evidence presented in this book will make absolutely clear that a sufficiently rising money supply is necessary to create inflation. But is it also a sufficient condition to do so? Is it not possible that no inflation may occur in spite of a strongly increasing money supply? Let us begin to analyse these problems by turning to the second question. Historically, very different objects have served as money.
You are not authenticated to view the full text of this chapter or article.
Elgaronline requires a subscription or purchase to access the full text of books or journals. Please login through your library system or with your personal username and password on the homepage.
Non-subscribers can freely search the site, view abstracts/ extracts and download selected front matter and introductory chapters for personal use.
Your library may not have purchased all subject areas. If you are authenticated and think you should have access to this title, please contact your librarian.