In a message dated 5/3/2006 2:32:55 P.M. Eastern Daylight Time, [EMAIL PROTECTED] writes: You're absolutely right about the disconnect between the growth of M1 or M2 and standard measures of inflation. (BTW, they've stopped reporting M3.) MF's idea that "inflation is always and everywhere a monetary phenomenon" has its basis in tautology: without the use of money, there could be no inflation.
Another version of the quantity theory might apply, by the way. The growth of M1 and M2 might have helped to cause _asset price_ inflation (which is missed in CPI inflation). That is, the growth of the money supply might have helped to cause the stock market bubble of the 1990s and the current housing market bubble. But I don't know the research on this. On the first paragraph: I think Friedman's intentions were very political. By postulating a unique and direct causation between inflation and money growth, which he blamed on irresponsible government social expenditure, the conservatives could then launch a campaign against social programs. On the question asset inflation it is indeed a matter of "excess liquidity" provided by the financial system . But then it depends on whether you see the money supply as an exogenous (FRB controlled) or as endogenous process fueled by the needs of the financial private sector through the process of financial intermediation-credit creation (M3). I think just about everybody, including former monetarists" agree that the latter is the dominant process. CS
