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No, but a lot of people still think so, even after the "widow-maker" trades that followed expectations generated by this erroneous interpretation of what would result from QE when the Fed introduced it in response to the GFC. They should ask former "bond-king" Bill Gross about it. Remember him?MV = PQ (or PT) is an accounting identity if properly understood, but imputing causality in the wrong way results in error even if one understands the symbolism correctly. Or making assumptions that do not hold in the real world, like holding V and Q aka T constant, and taking M as the independent variable and P as the dependent.Milton Friedman is, of course, remember for his interpretation of monetarism along these lines. It was tested in the crucible of monetary policy and failed as theory of
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No, but a lot of people still think so, even after the "widow-maker" trades that followed expectations generated by this erroneous interpretation of what would result from QE when the Fed introduced it in response to the GFC. They should ask former "bond-king" Bill Gross about it. Remember him?No, but a lot of people still think so, even after the "widow-maker" trades that followed expectations generated by this erroneous interpretation of what would result from QE when the Fed introduced it in response to the GFC. They should ask former "bond-king" Bill Gross about it. Remember him?MV = PQ (or PT) is an accounting identity if properly understood, but imputing causality in the wrong way results in error even if one understands the symbolism correctly. Or making assumptions that do not hold in the real world, like holding V and Q aka T constant, and taking M as the independent variable and P as the dependent.Milton Friedman is, of course, remember for his interpretation of monetarism along these lines. It was tested in the crucible of monetary policy and failed as theory of
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Mike Norman considers the following as important:
This could be interesting, too:
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MV = PQ (or PT) is an accounting identity if properly understood, but imputing causality in the wrong way results in error even if one understands the symbolism correctly. Or making assumptions that do not hold in the real world, like holding V and Q aka T constant, and taking M as the independent variable and P as the dependent.
Milton Friedman is, of course, remember for his interpretation of monetarism along these lines. It was tested in the crucible of monetary policy and failed as theory of inflation that could be used to formulate a rule.
Henry Hazlitt, a talented writer that was not an economist, was perhaps the most influential in disseminating this idea in his book, Economics in One Lesson (1946), about "inflation." It is apparently still influential since it "simplifies" a complex economic idea for the masses.
One could compare Economics in One Lesson with Stephanie Kelton's The Deficit Myth as influencers. They are popular accounts about essentially the same issue. Now that solvency is being brushed off the table in policy discussion in favor of the inflation constraint, The debate is more focused where it should be, because it actually matters, on inflation.
What is needed now is a popular book on inflation that responds to Hazlitt's Economics in One Lesson.
Brian looks at a more sophisticated Austrian view in this post.