Tape 60 - Pre-Election Economic Perspective, Real Money Supply, Residual Money Supply

Download
- Rights
- Limited Re-Use
  CC BY-NC 4.0
  More Rights Info
- Files (1)
- MP3
- Please be patient with media downloads. They are often large files.
Share

Embed Code
<iframe src='https://idn.duke.edu/ark:/87924/r4862bt7n?embed=true' height='125px' width='100%' frameborder='0' marginwidth='0' marginheight='0' scrolling='no' loading='lazy' allowfullscreen></iframe>
Permalink

https://idn.duke.edu/ark:/87924/r4862bt7n
Skip to Item Info

Loading the media player...

Files for this Item

Transcript

Transcripts may contain inaccuracies.

-	Hello.	0:02
	This is Instructional Dynamics, inviting you to another	0:02
	of our bi-weekly interviews with Dr. Milton Friedman,	0:06
	professor of Economics at the University of Chicago.	0:08
	We are taping this interview on Wednesday, November 4th.	0:12
-	Before we go on with the regular interview,	0:16
	may I take this opportunity to extend	0:19
	my heartiest congratulations to my colleague on these tapes,	0:22
	Professor Paul Samuelson for having just been awarded	0:26
	the Nobel Prize in Economics.	0:29
	The prize was awarded to him, as you doubtless have read	0:32
	in the papers, for his scientific work in mathematical	0:34
	economist extending back over many years.	0:39
	It is a well-merited award for this work.	0:42
	The subscribers to this series know Paul Samuelson best	0:46
	as a commentator on current affairs.	0:51
	That is quite a different side of his activity	0:54
	than his technical, scientific work	0:56
	which I have described briefly in my regular column	0:59
	in Newsweek appearing the week in which I am talking.	1:02
-	Professor Friedman, now that the election is over,	1:08
	this is a good time to look ahead and get some perspective	1:10
	of the longer term trends ahead.	1:14
-	Yes, it is.	1:17
	The election rather confused issues	1:18
	because with political considerations at stake,	1:22
	we had all sorts of claims and counter-claims	1:27
	flying through the air.	1:29
	We had economists who had been associated	1:30
	with the Democratic administrations complaining	1:32
	that the Republican game plan hadn't worked.	1:35
	On the other hand, we had the administration economist	1:38
	proclaiming that it had and it was working.	1:40
	The economic issues of relatively high unemployment,	1:44
	of continued rising prices were stressed by the Democrats,	1:48
	the social issues were stressed by the Republicans.	1:52
	I may say that aspect of it was rather curious	1:55
	just judged by its economic content.	1:58
	It's easy enough to complain that things aren't well,	2:01
	but one would expect an alternative to be suggested.	2:03
	However, the only real alternative to the present policy	2:07
	which the administration has been following	2:10
	which was suggested by any of the critics	2:14
	from the Democratic side was interestingly enough	2:19
	wage price guidelines or job owning	2:23
	or some kind of direct action on prices and wages,	2:26
	of a kind which the Democratic administration had tried	2:30
	with its guidelines in the 1960's	2:33
	which it had found did not work	2:35
	and which it had then suspended.	2:37
	But enough for that past, let's go on to the future.	2:39
	When we can look at the thing, at least for a little while,	2:42
	without it's being clouded over	2:45
	by the political considerations, one way or the other.	2:47
	In some ways, the convenient time to take for such a survey	2:51
	is between now and the next major political event	2:54
	which will be the presidential election in 1972.	2:57
	Undoubtedly, both the administration	3:01
	in its economic policies and the opposition	3:05
	in its economic commentaries will from now on out	3:09
	be looking forward toward that situation.	3:12
	I don't mean by these comments to suggest	3:17
	that everything that happens between now and 1972 will	3:20
	either be the deliberate result of or the consequence of	3:23
	the policies followed by the administration, far from it.	3:27
	We talk in these tapes a great deal about the policy	3:30
	followed by the administration and government	3:32
	because that is one thing you can lay your hand on,	3:34
	one thing that is central, but I feel it necessary	3:36
	to keep on emphasizing	3:40
	that many other factors enter the picture,	3:42
	that there are all sorts of forces deriving from	3:44
	outside governmental action which alter circumstances.	3:47
	For example, it was those forces which meant	3:51
	that the recessions through which we have just been coming	3:54
	was much milder than there was reason to expect	3:57
	on the average from the reaction of the economy	4:00
	to past periods of monetary restrain or past periods	4:04
	of monitoring fiscal action.	4:09
	That route of mildness was caused by something	4:11
	that the government had no control over.	4:13
	Well now let's go back.	4:15
	So far as the next six months or so are concerned,	4:17
	and so far as the consequences	4:20
	of government policy are concerned, those are already	4:22
	as I have so often emphasized largely in the works.	4:25
	The present appearances that we should continue to have	4:29
	some tapering off of inflation, that we should continue	4:35
	to have some rise in unemployment until the early part	4:38
	of next year, but that we should have a rise	4:41
	in economic activity.	4:45
	The real output is going to go up and we have hit the bottom	4:48
	and are on our way up.	4:51
	Now the picture's, of course, very much confused	4:52
	in the current figures by the General Motor strike.	4:55
	The General Motor strike affects	4:57
	a very appreciable amount of economic activity.	5:01
	It is largely responsible for the sharp decline	5:06
	in the industrial production index.	5:08
	It is responsible for a smaller rise in GNP	5:11
	in the third quarter and will be in the fourth quarter	5:13
	than what otherwise would have been expected.	5:16
	But almost everybody agrees	5:18
	that that is a temporary disturbing phenomena	5:21
	which just shifts activity in time to a greater extent	5:23
	than to alter the general pattern of the activity.	5:26
	Another thing that is very confusing and especially	5:30
	because of the great political attention	5:33
	that has been paid in recent months to these	5:35
	are the month to month aberrations in the figures.	5:37
	One month cost of living goes down,	5:40
	the next month it goes up, the next month it goes down.	5:42
	When it goes down or doesn't rise as rapidly,	5:45
	the supporters of the administration assert	5:47
	in loud and strong voices that this is evidence	5:51
	that the game plan is working.	5:54
	On the other hand when it goes up sharply, it's not.	5:56
	Now one point about that that I should emphasize	5:59
	is that these erratic ups and downs are in considerable part	6:03
	of statistical origin and do not correspond	6:09
	as similar ups and downs in the economy.	6:12
	I stress this point because it is easy to be mislead.	6:15
	When the cost of living shows a 2% rise,	6:18
	annual rate of rise one month and a 6% annual rate of rise	6:22
	in the next month, the natural inclination is to think	6:26
	that prices are bobbling around like that.	6:28
	That is not the case.	6:30
	Our statistical measures are imperfect.	6:32
	If we could have a satisfactory measure of the movements	6:34
	of prices, I am absolutely convinced myself	6:38
	that you would not find such aberrations.	6:41
	It is a technical problem to explain why you get	6:43
	these aberrations, but a couple of points may be mentioned	6:46
	which will suggest the kind of thing that I have in mind.	6:51
	For example, in the consumer price index, certain items	6:54
	like the cost of housing, mortgage, insurance and the like	6:59
	are priced only once a quarter.	7:02
	Whatever happens over that quarter tends to get piled in	7:04
	to the one month in which they are priced,	7:07
	or again certain seasonal items are on the market	7:09
	only during some months of the year,	7:14
	perhaps watermelons are off the market for part of the year.	7:15
	When they come back on the market, there's a problem of	7:18
	how you link that price with the behavior of other prices	7:21
	and because of the technique by which it is done,	7:25
	very often you have a large element stuck into one month	7:27
	which really should have been spread over	7:32
	a longer period of time.	7:34
	Well, one could go on in great detail,	7:36
	what I want to stress is that you must average out	7:37
	these month to month aberrations.	7:40
	You must not regard them as corresponding to	7:42
	what is actually going on in the economy,	7:44
	but as an imperfect measure of them.	7:46
	Well when you do average them out, as I said,	7:48
	the evidence for the next six months is fairly clear.	7:51
	Now what about the period beyond that?	7:53
	Here we have to face one of the best ways I think of facing	7:56
	up to this issue is to ask yourself what the problem is	8:00
	as it is viewed from Washington, as you or I would view it	8:04
	if we were in Washington.	8:07
	The problem is that, on the one hand,	8:09
	we are trying to conquer inflation.	8:11
	The rate of price rise seven, eight percent whatever,	8:13
	depending on what price index number you look a year ago,	8:17
	is down to something like four to 6%,	8:20
	again depending on what price index you use.	8:22
	For broad GNP indexes down to deflator index down	8:26
	to a little over 4% per year.	8:31
	The aim is to keep that going, that is to keep the decline	8:34
	in the rate of price rise going.	8:37
	To come down from 4% to 3% to 2%.	8:38
	That's one side of the picture.	8:43
	If that were the only thing you were concerned about	8:45
	was getting inflation under control,	8:47
	well the obvious policy would be to keep your foot	8:49
	on the brake as hard as possible.	8:52
	That would mean on the side of monetary policy, of zero	8:54
	or slow rate of increase in the quantity of money.	8:58
	It would mean on the side of fiscal policy	9:01
	for whatever influence it may have keeping down spending,	9:03
	keeping up taxes, trying to eliminate any deficit	9:07
	around a surplus.	9:12
	That would be a policy if you were concerned solely	9:13
	and exclusively with stopping inflation.	9:15
	When I say stopping inflation,	9:18
	I mean really stopping inflation.	9:19
	If you were, as I've already emphasized,	9:21
	the policies already taken will lead to	9:24
	a continuing tapering off of inflation,	9:27
	but that's only a six, nine months,	9:29
	10 months, 12 months lag.	9:31
	The question is if you were trying to taper off inflation	9:34
	as rapidly as possible and bring it right straight down	9:38
	to zero, the only way you could do that in a short space	9:41
	of time would be by continuing,	9:44
	by even intensifying monetary restraint,	9:47
	much stronger than it is now, keeping the quantity	9:49
	of money constant or growing very slowly.	9:52
	Of course, if you followed that policy	9:55
	and were following it systematically	9:57
	you would take your foot off the brake	9:58
	before you would actually hit the zero inflation,	10:00
	but even so, in the meantime,	10:03
	you would have caused a continuation of the recession.	10:05
	That would be the price,	10:09
	the intensification of unemployment,	10:11
	that would be a resumption of the rise of unemployment,	10:12
	that would be the price you would pay	10:16
	for bringing a very rapid and quick end to the inflation.	10:18
	Now on the other side of the picture,	10:21
	the one problem with inflation, the other problem is	10:25
	that in the course of containing inflation we have produced	10:28
	a mild recession and a gap	10:32
	between actual and potential outcome.	10:34
	As I've emphasized before,	10:37
	the recession has been relatively mild.	10:39
	It has been a necessary price to pay,	10:41
	but nonetheless it's not a desirable one.	10:43
	There are various estimates about	10:47
	how much of a gap has been produced,	10:49
	how much our actual output today is below the output	10:52
	that could be produced with a,	10:56
	which you might call a normal frictional amount	10:59
	of unemployment.	11:01
	You always have some unemployment people changing	11:02
	from one job to another job to another.	11:04
	People who are newly entering the labor force,	11:08
	students who are leaving school,	11:10
	youngsters who are growing up who are trying to find jobs.	11:11
	The question is, however, that the problem is, however,	11:14
	that unemployment today is by almost everybody's view,	11:18
	larger than this normal frictional amount of unemployment.	11:24
	And the result of this is that you have a gap	11:27
	between what the economy could produce	11:30
	and what it actually is producing.	11:32
	Of course, the unemployment is not only of men,	11:34
	but also of machines.	11:36
	You have a rather low rate of utilization of capital.	11:37
	There's no way of estimating precisely of what this gap is	11:42
	because there's no precise way of estimating	11:45
	what the potential output of the economy is.	11:48
	Under great stress and stimulus, the economy can produce	11:50
	more than it could produce for a sustained period of time.	11:53
	But most commentators would say that the gap is perhaps	11:56
	roughly of the order of 4%.	11:59
	That is to say that potential output with normal kinds	12:02
	of unemployment, frictional unemployment, is about 4% higher	12:07
	than the actual output.	12:11
	This gap of 4% corresponds to a higher unemployment rate	12:13
	of about two percentage points of about 6%, not quite,	12:17
	it's five and a half, six, versus something like	12:20
	three and half to 4% as a reasonable frictional level	12:23
	of unemployment.	12:26
	Now in addition to this gap between actual	12:28
	and potential output now, of course potential output	12:31
	continues to increase.	12:34
	It increases because population and labor force grow	12:36
	because you have new people coming into the labor force.	12:38
	It increases because capital expenditures	12:41
	raise the capacity.	12:45
	Capital spending is much less buoyant now	12:48
	than it was a while back, but nonetheless it is positive.	12:51
	We are adding to our stock of machines, of buildings,	12:54
	of factories, and so on.	12:57
	Again, there's no precise way of making an estimate	13:00
	of the rate at which potential output is increasing,	13:03
	but most estimates would be that it's somewhere	13:06
	of the neighborhood of 4% per year.	13:08
	That's perhaps a little on the high side	13:10
	over the last hundred years.	13:12
	Three, 3.5% would have been	13:13
	a better average rate of increase in our potential capacity.	13:15
	But let's take it at 4% a year.	13:19
	Now that means that the other side of the problem is	13:22
	how do we follow a policy, or try to follow a policy	13:27
	which will bring back output to its potential	13:31
	which will eliminate the present gap and permit output	13:36
	to expand by enough to match the growth of potential output?	13:39
	If that were to be achieved by, let us say, two years	13:44
	from now, election day 1972, that would require something	13:48
	like an 8% increase in output between now and then	13:52
	to match the increase of potential output plus a 4% increase	13:56
	to match the gap which would mean a 12% increase	13:59
	from now to then, and so therefore the other horn of this	14:02
	is that it would be highly desirable if you could	14:06
	to get a rate of increase in real output of 6% per year	14:10
	for each of the next two years in order to get real output	14:13
	back on a potential level.	14:16
	Now, if that were all you were concerned with,	14:19
	if you weren't worried about inflation, if you were willing	14:21
	to take only that tapering off of inflation	14:25
	which is already in the cards, but then if necessary	14:27
	see a resumption of inflation, the most rapid way	14:30
	to achieve that increase in output,	14:33
	at least for a temporary period would be to step	14:35
	on the accelerator, to pour on money, to raise the quantity	14:38
	of money fairly rapidly.	14:41
	On the one hand, to have government spending, lower taxes	14:43
	on the other, and then in this way, as people view it,	14:47
	provide great impetus to the economy.	14:52
	I am trying to avoid here, I should say, any arguments	14:56
	about the merits or relative importance of fiscal	14:58
	and monetary policy.	15:02
	My own view is that of the package	15:03
	I have been talking about, both on the downside	15:05
	and on the upside, the really important component of it	15:07
	is the monetary policy but that really doesn't affect	15:10
	the nature of the present issue and really doesn't matter	15:12
	and so I'm leaving that to one side	15:15
	and begging that question.	15:17
	Well, now why not do that?	15:20
	If you need a real output increase of 6% per year	15:24
	for the next two years, if prices are now rising at 4%,	15:28
	if you think that the next six months will bring you down	15:31
	to maybe about 3%, then why not increase the quantity	15:34
	of money at a rate of 9% per year over the next two years	15:37
	and say, "Okay, we'll be satisfied	15:41
	"with a 3% inflation."	15:42
	Well, that would be one way to do it,	15:45
	but the problem with that is,	15:49
	and this is the real dilemma of policy,	15:51
	that the odds are that if you tried to do that	15:55
	that isn't what would happen.	15:57
	Arithmetic is not economics.	15:59
	If in fact, you started to increase the quantity of money	16:01
	at nine or 10% per year, then I do not believe, in fact,	16:04
	that the outcome would be a 6% rate of real growth	16:08
	plus a 3% rate of price rise.	16:11
	Instead what would happen would be that after four or five	16:14
	or six months, as people got on to what was going on,	16:18
	as demand started to react to the increased rate of growth	16:21
	of the quantity of money, instead of the tapering off	16:24
	of inflation continuing, instead of prices going down	16:27
	to 3%, instead of interest rates continually go down	16:30
	as they have been going down, what would happen instead	16:34
	under that scenario would be that you would have	16:37
	a resumption of rising inflation,	16:40
	that the price rise would start to go up from 3% to 4% to 5%	16:44
	that by 1972 the place you would find yourself would be	16:49
	still not having obtained your objective	16:53
	of hitting potential.	16:56
	But with the price rise back up to five, 6% per year,	16:57
	so instead of a combination of a 6% real output growth	17:01
	with a 3% price growth, what you would have had is maybe	17:04
	a combination of a four or 5% average real output growth	17:09
	with a price rise of maybe something like 5, 6%	17:13
	at the rate of 5, 6%.	17:16
	But you may interject at this time,	17:18
	where will the money come from?	17:20
	If I did the arithmetic,	17:21
	I found that I need a real output growth of 6%.	17:23
	I said, "Let's suppose	17:27
	"that the price inflation tapers off to 3%."	17:28
	Then you would say to me,	17:31
	"But now isn't your arithmetic array?	17:32
	"If the Fed increases the quantity of money by 9%,	17:35
	"you've just said that what you might have is	17:39
	"a real output growth at the annual rate of say 5%	17:42
	"and price is rising at 5 or 6%.	17:45
	"That's 10 or 11%.	17:47
	"Where does the money come from?"	17:48
	Well the answer to that is very simple.	17:50
	We know over and over again that whenever you start	17:52
	with expansion at a rapid rate,	17:57
	spending goes up more rapidly than the quantity of money.	18:00
	In technical term, velocity rises.	18:03
	Movements in velocity tend to reinforce the movements	18:06
	in the quantity of money,	18:09
	particularly in the narrow money supply M1,	18:10
	which is the one I have for the moment been talking about	18:14
	because the Fed has been stating its objectives	18:17
	in terms of that narrow money supply.	18:19
	Now if that narrow money supply were to go up	18:22
	at anything like the rate of 9% per year,	18:25
	which is a distinct acceleration over the 5%	18:29
	at which it has been going up, well then you would have	18:32
	an income spending going up not at 9% a year,	18:36
	but maybe at 11, 12% a year.	18:39
	Let me carry you back to the experience	18:42
	between 1967 and '69.	18:45
	From early 1967,	18:47
	say January 1967 to January 1969,	18:51
	during that two year period, the quantity of money	18:56
	narrowly defined currency and demand deposit was rising	18:59
	at the annual rate of 7.3% per year.	19:02
	Over a period which has shifted about six months later	19:06
	to allow for the usual lag, personal income was rising	19:09
	at the rate of about 9.3% a year or about	19:14
	two percentage points more.	19:17
	Over that period prices were rising at an annual rate	19:19
	of about 5% a year, and even a little over 4% a year	19:22
	for real output.	19:25
	Similarly, if we go ahead and if you were	19:26
	to follow the policy of a rapid rate of increase	19:29
	of about 9% per year in M1, then the expectation would be	19:31
	an even more rapid rate of increase in personal income	19:36
	or dollar income with a resumption of inflation	19:40
	and acceleration of inflation ending up in 1972	19:47
	in a position where you still haven't eliminated the gap	19:51
	and yet you haven't accelerated inflation.	19:53
	So, it seems to me that what you must do,	19:57
	and what the administration is trying to do at the moment,	20:01
	or whether they will continue to be able to resist	20:04
	the pressures is not clear, is that you must	20:06
	try to steer some middle course between these.	20:10
	That is the real dilemma of policy.	20:13
	How do you choose a middle course which will not be	20:15
	so restrictive as to get the rate of inflation decline	20:19
	that you would like, but not so expansive as to get	20:23
	the rate of output increase you would like?	20:26
	I should also emphasize that picking a particular period	20:29
	like two years between now and the elections of '72,	20:32
	there may be no policy, no conceivable policy	20:37
	which will enable you to combine	20:42
	the two things you would like to combine,	20:44
	a continued and substantial reduction in the rate	20:46
	of inflation and an elimination of a gap between actual	20:49
	and potential output, if you have a problem	20:53
	of making a compromise between these.	20:57
	Now the Federal Reserve has indicated	21:01
	that its aim is something like a 5% increase	21:04
	in the quantity of money per year.	21:08
	If it were to stick to that aim, which in my opinion is	21:09
	a very sensible compromise between those two,	21:13
	then let's see what the arithmetic looks like.	21:17
	Once again we may expect that if M1, the narrow money supply	21:19
	increases at 5% a year, personal income will go up	21:23
	at a more rapid rate than that.	21:27
	This is partly because a broader money supply,	21:30
	something like M2 which includes time deposits	21:32
	with or without CDs will go up at a more rapid rate than M1.	21:35
	But our past experience suggests that you would expect	21:40
	a more rapid rate of growth in personal income,	21:43
	the quantity of money, at least for a time	21:46
	after you have had an acceleration of monetary growth.	21:48
	That would mean that you would have over the next couple	21:51
	of years something like a 7% per year rate of growth	21:53
	of personal income, of dollar nominal GNP.	21:58
	If indeed by 1972 you have tapered off the rate of inflation	22:03
	from 4% to something like 2%, that would mean that	22:10
	by that time you would have a output increasing	22:14
	at something like 5% per year.	22:16
	On that scenario, you would be reducing the gap	22:19
	between actual and potential, but you would not have reached	22:22
	a reduction, because you cannot with 5% a year in 1972	22:25
	average 6% per year in real output between now and then.	22:29
	You would have compromised.	22:33
	You would have gotten the rate of inflation down to 2%,	22:34
	the rate of unemployment down to something, let's say,	22:38
	like 5% not back to your 4%.	22:40
	You would still have a way to go, but you would then be	22:43
	in a position where you weren't faced again	22:46
	with the dilemma of having to produce a recession to stop	22:49
	an unacceptably high rate of inflation.	22:53
	You would be in a position from which you could continue	22:56
	to go forth to consolidate.	22:58
	If you continue to increase the quantity of money	23:00
	under those circumstances at 5%,	23:02
	you could for a time continue to have output increase	23:05
	at about 5% per year until you would reached a position	23:07
	at which you are on a non-inflationary	23:11
	full potential growth.	23:14
	Now that's what I've described as a scenario,	23:15
	it's a plan, it's an aim.	23:18
	It doesn't mean it will be followed.	23:20
	Indeed, as you look forward to what's likely to happen	23:22
	and get a perspective over the next year and a half,	23:25
	the likely course of events is that	23:27
	as what I've been describing persists,	23:30
	there will be increasing pressure on the administration	23:32
	from the administration, and this is already been happening	23:35
	to some extent, to try to go more rapidly than that.	23:38
	There's a tendency to be rather short-sighted	23:41
	and look only toward the next election.	23:44
	There will be a desire to achieve a better result	23:46
	on unemployment and output than I've described by that time,	23:49
	and if that happens, there will be pressure on the Fed	23:52
	to step the quantity of money rate of increase up above 5%	23:55
	and you may very well have a slower tapering off	24:00
	of inflation than I have described,	24:03
	or a turnabout in a resumption of inflation.	24:05
	I think the key issue, the key thing one ought to watch	24:07
	over this next year and a half, from the point of view	24:10
	of the long run potentialities of, and inflationary	24:13
	or a non-inflationary economy is precisely how resistant	24:16
	the administration and Federal Reserve board are	24:21
	to this kind of pressure, to what extent they hold firm,	24:23
	to what extent the public at large can be persuaded	24:26
	to go along with this firm and steady policy?	24:28
-	Questions and comments from readers have accumulated	24:32
	and I had hoped that we could cover several of them	24:35
	in this session, but I'm afraid we're not going	24:38
	to have very much time.	24:41
	However, let's try to do what we can with them.	24:42
	One subscriber writes, "If inflation is at a 5% annual rate	24:46
	"and the money supply increases at a 5% annual rate,	24:50
	"is there any real increase in the money supply?	24:54
	"Please explain answer."	24:58
-	The answer is that under the circumstances specified,	25:01
	the real money supply defined as command over good	25:04
	and services stays constant.	25:09
	There is no change in the real money supply.	25:10
	But the important point to understand in connection	25:13
	with this question is that the real money supply is	25:15
	at the discretion of the holders of money,	25:18
	that the Federal Reserve, the government can only change	25:20
	the nominal money supply.	25:23
	Whether the real money supply rises or not depends entirely	25:25
	on whether people at large wish to have smaller or larger	25:29
	ratios of nominal amount of money to their income.	25:33
	That is it depends on what they desire to do about velocity.	25:36
-	Another subscriber asks, "Do you agree that what causes	25:39
	"high interest rates is the downward direction	25:43
	"in the residual money supply, what remains	25:45
	"after all debts and loans are subtracted	25:48
	"from cash and assets?"	25:52
-	No, I do not agree.	25:54
	I do not believe the concept of the residual money supply is	25:55
	a useful or good concept.	25:58
	The problem is	26:02
	if I take all cash and assets on the one hand	26:08
	and all debts and loans on the other,	26:10
	the balance sheets must balance,	26:13
	that's what double entry bookkeeping is about.	26:14
	The difference between those two is zero.	26:16
	There is no difference and in that sense	26:19
	the residual money supply as this fellow defines it	26:20
	is always zero.	26:23
	Just as on a balance sheet assets always equal liability.	26:24
	What he presumably has in mind is subtracting	26:28
	some debts and loans from some cash and assets.	26:33
	He has in mind taking a partial balance sheet on which	26:37
	the two sides need not balance.	26:41
	Now it's conceivable that there is such a balance sheet	26:42
	which would be useful.	26:45
	I have never seen one which has been worked out	26:46
	which is useful.	26:49
	I think the subscriber who asked this question should	26:50
	set down for himself a more precise and specific definition	26:55
	of what he means by the residual money supply and justify	26:59
	in his own mind why he includes only some assets	27:04
	on the one side and only some debts and loans in the other.	27:08
	I believe that what causes high interest rates,	27:12
	the kind we've been experiencing in the past few years	27:18
	is primarily the anticipation of high inflation.	27:20
	What causes the anticipation of high inflation is primarily	27:24
	the experience of high inflation.	27:28
	What causes the experience of high inflation is primarily	27:30
	a rapid increase in the quantity of money,	27:33
	and thus what causes high interest rates today,	27:35
	what has caused the high interest rates today is	27:39
	the rapid increase in the quantity of money over the period	27:42
	from '64 to '69, or early '69, end of '68.	27:46
	Interest rates are coming down,	27:52
	short-term interest rates are coming down much more sharply	27:53
	than long-term interest rates.	27:56
	What has been causing that to come down has been	27:57
	the restraint in the rate of growth of the quantity of money	27:59
	since the end of 1968.	28:03
-	Thank you very much Professor Friedman.	28:07
	Remember subscribers if you have any questions or comments	28:09
	for topics you would like to hear discussed in this series,	28:12
	please send them to Instructional Dynamics Incorporated,	28:16
	166 East Superior Street, Chicago, Illinois 60611.	28:19
	Dr. Friedman will be visiting with you again in two weeks.	28:25

Item Info

Title:

Tape 60 - Pre-Election Economic Perspective, Real Money Supply, Residual Money Supply

Date:

1970

Contributor:

Friedman, Milton, 1912-2006

Subject:

Format:

audiocassettes

Language:

English

Digital Collection:

Paul A. Samuelson papers, 1933-2010 and undated

Source Collection:

Paul A. Samuelson papers, 1933-2010

Series:

Economics Cassette Series: Milton Friedman

Rights:

Limited Re-Use

CC BY-NC 4.0

Rights Note:

This material is made available for research, scholarship, and private study. Copyright in this material has not been transferred to Duke University. For reuses of this material beyond those permitted by fair use or otherwise allowed under the Copyright Act, please see our page on copyright and citations: https://library.duke.edu/rubenstein/research/citations-and-permissions.

Identifier:

RL10082-CS-0252
ref2644_s6b
samuelsonpaul
duke:325274
pstau001251
ark:/87924/r4862bt7n
d3732e67-5a11-4860-b61c-32bcec0737ad

Permalink:

https://idn.duke.edu/ark:/87924/r4862bt7n

Sponsor:

Sponsor this Digital Collection

Tape 60 - Pre-Election Economic Perspective, Real Money Supply, Residual Money Supply

Transcript

Item Info

Economists' Papers Archive

More Info & Options