Artikel

De inflatietheorie van Milton Friedman als basis voor een extreem liberalisme

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Abstract

Milton Friedmans inflation theory as basis for an extreme liberalism — The purpose of this paper is to analyse Friedman’s theories of the causes and the development of inflation and to point out the relationship between these theories and his extreme liberal doctrine. In Friedman’s explanation of the inflationary process three sub-theories can be distinguished. First there is a theory of the relationship between the amount of money and the volume of production on the one hand and prices on the other. Secondly there is the theory of the influence of an increase (decrease) in the amount of money on the interest rate. Thirdly, Friedman has developed a theory of the effects of a rise in prices on wages and employment. Keynes thought that an increase in the amount of money would lower the rate of interest (liquidity effect) and enhance investment. Friedman does not deny this but he insists on the upward pressure exerted by an increase in the amount of money on the production and prices of goods and services. The increase in the nominal national income which results from this pressure brings about a greater demand for money and a return to a higher interest rate (income and price level effects). After some time the anticipation of further price increases induces creditors to claim higher interest rates in order to compensate for the loss of the purchasing power of their capital. Wage earners who anticipate a decrease in the purchasing power of their income will claim higher increases in pay and bring about a reduction in the demand for labour. Unemployment, which was temporarily reduced will grow and again attain its „natural” level, determined by non-monetary factors such as technological progress, geographical mobility and professional flexibility of labour, etc. It is even probable that due to the expansive monetary policy unemployment will in the end exceed this natural level. A high and often irregular rate of inflation enhances the fear of potential investors that they will put their money into the wrong projects and thus it delays investment and increases unemployment. Friedman concludes from his inflation theory that a Keynesian policy of pump priming is in the end harmful to economic growth. He defends the view that government intervention should be limited to controlling the money creation process and should not allow this money creation to consistently exceed the natural growth in real national income. Experience in different countries has shown, however, that it is not easy for central government or central bank authorities to avoid fluctuations in the money supply. Left to itself a free market economy is not able to return quickly to a state of equilibrium if submitted to high upward or downward pressures on demand due to exogenous factors such as war, natural disaster, failure of crops etc. Some of the big fluctuations in production, prices and incomes which are brought about by such exogenous factors are the result of speculative operations, others are due to the influence on investment of changed expectations. It is here suggested that income and price policies are better suited to reduce inflationary tendencies than a restrictive monetary method is. Such policies request much courage from politicians who try to apply them. However, the consequences of applying a restrictive monetary policy are more painful than the sacrifices imposed on workers by an incomes policy. If political muscle is necessary to fight inflation, it is better to apply it to implement incomes policies than to impose a restrictive monetary policy leading to recession and mass unemployment.

How to Cite:

Vandewalle, G., (1981) “De inflatietheorie van Milton Friedman als basis voor een extreem liberalisme”, Tijdschrift voor Sociale Wetenschappen 26(2), 93–122. doi: https://doi.org/10.21825/tvsw.94788