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Logical justification for monetarism

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C posted on Mon, Apr 4 2011 5:25 PM

The keynsians at least use the fallacious 'paradox of thrift' to attempt to explain their theories, but in all my readings I've never heard an attempt to justify monetarism on logical grounds.

They seem to be OK with the idea of prices adjusting to an increase in the demand for money.  Friedman actually adovated at one point pegging the nominal interest rate at zero.  Which would imply falling prices.  So it doesn't really seem that deflation per say is their bugaboo, but rather just a fall in the money supply.

Did friedman, or any other monetarist ever attempt to explain this logically, or was it just based on pure statistical correlation?

Thanks,

Chris

  At least he wasn't a Keynesian!

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I think for the longest time Friedman thought gold was just a 'barbaric relic', why dig up gold and store it in vaults when paper and ink are cheaper....

Interesting that later in his life he reverted to a gold standard advocate on public choice grounds....

Where there is no property there is no justice; a proposition as certain as any demonstration in Euclid

Fools! not to see that what they madly desire would be a calamity to them as no hands but their own could bring

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C replied on Mon, Apr 4 2011 7:12 PM

I just read an article from Tabarrock where he says .. "in monetarist theories [the business cycle is] a misallocation of resource due to a confusion of real and nominal price signals"

What the hell does that mean?

  At least he wasn't a Keynesian!

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