How this restatement differs from Friedman’s

Tim Congdon ()

Chapter 2 in Money and Inflation at the Time of Covid, 2025, pp 88-99 from Edward Elgar Publishing

Abstract: The theory at work in the book's analysis – the theory labelled in Chapter 1 “broad-money monetarism” – needs to be distinguished from the monetarism of Milton Friedman and the Chicago School. Three main differences are highlighted in Chapter 2. The first relates to the determination of the quantity of money. The Chicago monetarist focus on the monetary base and the base multiplier is rejected. Instead, as already mentioned in Chapter 1, the quantity of money is seen as the result of credit extension by the banking system. Secondly, the Chicago School often advocated that banks hold 100 per cent cash reserves against their deposit liabilities. But arguably the 100 per cent cash reserves proposal, if it were ever to be implemented, would be a destructive attack on the freedom of banks’ management in a market economy. Finally, the insistence on broad money as the crucial money aggregate – for purposes of analytical diagnosis and prognosis, and in policy-making – is much stronger in Money and Inflation at the Time of Covid than in any of Friedman's work. Friedman and other Chicago School members varied in their views on the most important money aggregate, and – as a result – were inconsistent in their accounts of the transmission mechanism.

Keywords: Monetary base; Base multiplier; 100 per cent cash reserves; Broad money; Narrow money; Commercial banks (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035328963
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