Farewell Milton (Friedman, not Keynes)
Sep. 26th, 2005 07:39 am![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
peterbirksThe Bank of England published its quarterly bulletin this morning. In it, it states that from next year it will no longer publish data on M0, effectively the notes and coins in circulation. M zero was a measurement beloved of monetarists, whose guru was Milton Friedman and whose great fans included Sir Keith Joseph and Margaret Thatcher.
The idea went that if you cut down the supply of M0, you could reduce inflation. To stimulate the economy, you printed more notes, or 1p coins, or whatever.
As economic theories go, I always felt that this was up in La-La Land with the idea that we should use Tellytubbies slices of toast as a reserve currency. So it's vaguely nice to have the Bank of England agree with me after 25 years or so.
My major argument against the theory at the time was that if you failed to print notes but people wanted liquidity, then they would use something else besides notes. In other words, you couldn't control the money supply by printing fewer notes. Empirically this has been conclusively proved in Zimbabwe, where printing fewer notes did nothing to halt inflation — it just created a barter economy or the use of other items as faux cash.
But there are still people who believe in the theory — presumably because, like journalists, they never like to let facts get in the way of a good story.
So, farewell, unlamented M zero.
The idea went that if you cut down the supply of M0, you could reduce inflation. To stimulate the economy, you printed more notes, or 1p coins, or whatever.
As economic theories go, I always felt that this was up in La-La Land with the idea that we should use Tellytubbies slices of toast as a reserve currency. So it's vaguely nice to have the Bank of England agree with me after 25 years or so.
My major argument against the theory at the time was that if you failed to print notes but people wanted liquidity, then they would use something else besides notes. In other words, you couldn't control the money supply by printing fewer notes. Empirically this has been conclusively proved in Zimbabwe, where printing fewer notes did nothing to halt inflation — it just created a barter economy or the use of other items as faux cash.
But there are still people who believe in the theory — presumably because, like journalists, they never like to let facts get in the way of a good story.
So, farewell, unlamented M zero.
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Date: 2005-09-26 07:24 am (UTC)Since I had a wangled mortgage with a 1.5% premium at the beginning of the 80's I remember this philosophy well since it led me to be paying 16.5% interest on the mortgage. Mind you the capital was only 16,500. And you tell it to the kids today....