Milton Friedman and the inflation during Eighties

This letter was for the Italian newspaper Corriere della Sera, I post it here translated.

“Dear dr. Romano,

I would make an observation about the mention of Milton Friedman by Marco Sabelli in pg. 26 of “Corriereconomia” of 10/25/10. If the money supply is 1,000 but the percentage in possession of people is 50%, in terms of inflation that is the same of a supply of 2,000, the double, but with money quantity in possession of people the half percentage, 25%. This observation is like the ones made by Joseph Stiglitz‘s theories and Quantity theory of money by the Cambridge school of economics.

What grows actually in that case is the quantity of money available for financial operations (rather than for investments during the period taken in consideration by Sabelli), i.e. practically buying shares for example, with “the inflations of things like the shares prices” i.e. stock market bubbles.

The fifteen years period ’80-’95 was characterised by big transfers of money from States by their Welfare sector to people, by the way at expenses of the government debt, not balanced by revenues.

I would finally point that 45% of Italian resources is in possession of 10% of the populace.”

Sabelli observed that with a high inflation during the period ’80-’95 there was not an equivalent growth of money supply, in contrast with Friedman’s theories.


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