page 80 Where I· differ from the majority of other 'monetarists' and in particular from the leading representative of the school, Professor Milton Friedman, is that I regard the simple quantity theory of money, even. for situations where in a given territory only one kind of money is employed, as no more than' a useful rough approximation to a really adequate explanation, which, however, becom...
Where I· differ from the majority of other 'monetarists' and in particular from the leading representative of the school, Professor Milton Friedman, is that I regard the simple quantity theory of money, even. for situations where in a given territory only one kind of money is employed, as no more than' a useful rough approximation to a really adequate explanation, which, however, becomes wholly useless where several concurrent distinct kinds of money are simultaneously in use in.the same territory. Though this defect becomes serious only with· the multiplicity of concurrent currencies which we· ar.e considering here, the phenomenon of substitution of things not counted as money by the theory for 'what is counted as money by it always impairs the strict validity ofits conclusions.Its chief defect in any situation seems to me to be that by its stress on the effects of changes in the quantity of money on the general level of prices it directs all-too exclusive attention to the harmful effects of inflation and deflation on the credit or debtor relationship, but disregards the even more important and harmful effects of the injections and withdrawals of amounts of money from circulation on the structure of relative prices and the consequent misallocation of resources and particularly the misdirection of investments which it causes.
I am in complete agreement with Professor Friedman on the inevitability of inflation under the existing political and financial institutions. But I believe that it will lead to the destruction of our civilisation unless we change the political framework.In this sense I will admit that my radical proposal concerning money will probably be practicable only as part of a much more far-reaching change in our political institutions, but an essential part of such a reform which will be recognised as necessary before long.
What is called a cost-push inflation is mer~ly the effect of increases in the quantity of money which governments feel forced to provide in order to prevent the unemployment resulting from a rise in wages (or other costs), which preceded it and which was conceded in the expectation that government would increase the quantity of money.
The past instability of the market economy is the consequence of the exclusion of the most important regulator of the market mechanism, money, from itself being regulated by the market process.
The abolition ofcentral banks.
No fixing of rates of interest
Not so very long ago, in 1960, I myselfargued that it is not only impracticable but probably undesirable even if possible to deprive governments of their control over monetary policy. 1 This view was still based on the common tacit assumption that there must be in each country a single uniform kind of money.
History certainly disproves the suggestion that in this respect government, which only profits from excessive issues, can be trusted more than a private issuer whose whole business depends on his not abusing that trust. Does anyone really believe that in the industrial countries of the West, after the experience of the last half-century, anybody trusts the value of government-sponsored money more than he would trust money issued by a private agency whose business was understood to depend wholly on its issuing good money?