Which economist proposed that “ Inflation is always and everywhere a monetary phenomenon”
- JM Keynes
- R. Hicks
- Milton Friedman
- Franco Modigliani
Correct Answer: Milton Friedman
Answer Explanation
Milton Friedman famously stated that inflation is always and everywhere a monetary phenomenon. This statement emphasizes the critical role of the money supply in driving inflationary trends.
A sustained inflation, defined as an increase in the price level of goods and services over time, is primarily the result of an excessive growth in the money supply, according to Milton Friedman’s assertion. Friedman argues that when money supply increases faster than real economic growth. There will be an imbalance between money supply and goods and services available. Thus, inflation is caused by upward pressure on prices.
Inflation is viewed from Friedman’s perspective from the perspective of its relationship with the quantity of money in circulation. In his view, sustained inflation is caused primarily by the growth rate of the money supply, despite various factors influencing short-term fluctuations in prices. To maintain price stability, he advocated a monetary policy approach that focuses on controlling the money supply.
Why the other options are not correct
a. JM Keynes:
In economics, John Maynard Keynes is known for his contributions to macroeconomics and the development of Keynesian economics. While Keynes addressed various economic issues, including the role of aggregate demand and government intervention, he did not propose the specific notion that “Inflation is always and everywhere a monetary phenomenon.”
In Keynesian economics, fiscal policy, government spending, and aggregate demand management are considered among the factors influencing economic outcomes. According to Keynes, money supply isn’t the only driver of inflation, but it can play a role in his framework.
b. R. Hicks:
In general equilibrium and welfare economics, Sir John Hicks made important contributions to economic theory. He, however, did not focus on the proposition “Inflation is always a monetary phenomenon” and instead developed the IS-LM model, which analyzed the interaction between investment and savings decisions, rather than focusing on the direct proposition: “Inflation is always and everywhere a monetary phenomenon.”
Although his work contributed greatly to economic thought, it did not specifically link inflation to the money supply as Friedman did.
d. Franco Modigliani:
For his contributions to understanding household savings and the life-cycle theory of consumption, Franco Modigliani received the Nobel Memorial Prize in Economic Sciences.
While Modigliani’s research was influential in shaping our understanding of consumer behavior and savings patterns, it did not directly propose the concept that “Inflation is always and everywhere a monetary phenomenon.” Instead of pinpointing the role of the money supply in driving inflation, his work focused more on individual and household economic choices.
Conclusion
Milton Friedman’s assertion that “Inflation is always and everywhere a monetary phenomenon” provides a unique and focused understanding of the underlying causes of sustained inflation. While other economists, such as Keynes, Hicks, and Modigliani made significant contributions to various fields within economics, their work did not explicitly tie inflation to the money supply in the way that Friedman’s proposition did.
Friedman’s monetarist perspective emphasizes the critical role that monetary factors play in driving inflation, whereas other economists, such as Keynes, Hicks, and Modigliani, made valuable contributions to economic theory. This perspective offers valuable insights into the complex dynamics of inflation and its underlying causes.